Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

EDINBURGH CORPORATION (No. 2) ORDER CONFIRMATION BILL

Read the Third time and passed.

Oral Answers to Questions — SCOTLAND

Health Councils

Mr. Robert Hughes: asked the Secretary of State for Scotland what representations he has had regarding the staffing and expenses of local health councils to be established under Section 14 of the National Health Service (Scotland) Act 1972.

The Under-Secretary of State for Health and Education, Scottish Office (Mr. Hector Monro): Some 50 organisations have offered views on these matters in response to the consultative document issued by my right hon. Friend's Department. I am grateful for the consistently helpful approach that has been adopted and will take full account of the suggestions made in framing the necessary regulations.

Mr. Hughes: I hope that that reply means that there is considerable interest in Scotland in local health councils. In his discussions and in any regulations and schemes which may come forward, will the Secretary of State make clear that a local health council can employ or appoint its own secretary, who need not be an employee of an area health board?

Mr. Monro: I certainly share the hon. Gentleman's enthusiasm, which is manifest in Scotland, for the local health

councils. Yes, I think that the local health councils will have the opportunity to appoint their own staff, but I hope that they will do this in close consultation with the area health boards. Indeed, it will be complementary to both the councils and the boards if a secretary is employed by both.

Mr. Baxter: Will the hon. Gentleman indicate what will be the extra cost per year of rearranging the health services in Scotland from the present regional basis to the new set-up?

Mr. Monro: I could not possibly do that without notice.

Mr. Hughes: While there may be occasions when a joint appointment is of value, does the hon. Gentleman nevertheless accept that, if the local health councils are to have a critical, not necessarily a condemnatory, view on what has been done by an area health board, having someone who is not an employee of the area health board can be a great advantage?

Mr. Monro: Yes, I accept that. While the local health councils may appoint their own staff, it must be accepted that the financial arrangements will be through the area health boards. Therefore, there must be consultation.

School Leaving Age

Mr. David Steel: asked the Secretary of State for Scotland whether he will consider as a matter of urgency bringing forward the proposed review of the results of raising the school leaving age in Scotland.

Mr. Monro: My right hon. Friend has no plans to review the raising of the school leaving age, though he has indicated his readiness to review the system of fixed school leaving dates in a year or so.

Mr. Steel: Does the Minister accept the need to review this matter now? Is he aware that a headmaster told me of a visit he made last week to a class of 16-year-olds where he found 15 playing cards and dominoes and 14 out of the 15 had jobs to go to? At a time when we are short of teachers and industry is crying out for labour, is it sensible to keep young people on at school beyond their sixteenth birthday?

Mr. Monro: It is essential to wait a year or so to see what effect the raising of the school leaving age has on leaving dates. I am sorry that any headmaster should find that happening in his school.

Mr. Lawson: In view of the difficulties in many schools, does the hon. Gentleman agree that the Government have a real responsibility to ensure that local education authorities can either cope with those difficulties or make arrangements so that they can properly cope with what is being done?

Mr. Monro: My Department keeps a very close watch on developments in Scotland. I hope the hon. Gentleman will accept that the present difficulties are not universal. Far from it. Far fewer than the total number of authorities involved have difficulties at the present time.

Mr. Ross: Surely we are entitled to some information from the Government on this matter. We are getting reports of a serious shortage of teachers. The result may show very much earlier retirement by teachers from whom another couple of years' teaching would be valuable at this time. There are also reports of shortage of accommodation. The pledge about roofs over their heads with respect to the raising of the school leaving age has not been carried out. Could we have some information about this matter soon?

Mr. Monro: Certainly. I hope to have the latest figures relating to the intake of new teachers for secondary education and the increase in the numbers of pupils because of the raising of the school leaving age at the end of this week and shall present them next week.
The accommodation situation may be exaggerated. There are difficulties, and certain places have been held back because of building problems this year. However, I am concerned that we should press on as fast as we can.

Crofters' Housing

Mr. Donald Stewart: asked the Secretary of State for Scotland if he will now raise the grant and loan for crofters' housing.

The Under-Secretary of State for Home Affairs and Agriculture, Scottish Office (Mr. Alick Buchanan-Smith): My right hon. Friend is presently considering the

current level of crofter housing assistance but he is not yet able to make a statement.

Mr. Stewart: I thank the Minister for that reply. May I point out to him that, apart from the question of the grant, the insufficiency of the loan has created a gap between the amount that crofters can put down and the cost of a house? To my knowledge, 30 applications have been withdrawn—

Mr. Speaker: Order. It must be put in the form of a question.

Mr. Stewart: Is the Minister aware that, as a result, 30 applications have been withdrawn and that the alternative will be to supply local authority houses, at far greater cost to the central Government? Will he therefore ask his right hon. Friend to speed up a favourable decision in this matter?

Mr. Buchanan-Smith: I realise that there is concern over the rising costs, and this is a factor that we will consider. However, it is not a new phenomenon for applications to be withdrawn after they have been submitted. I also ask the hon. Gentleman to bear in mind that crofters have a considerable benefit from a preferential interest rate of 3⅛ per cent.

Mr. Strang: Does the Minister appreciate that I raised this issue with his hon. Friend when we last had Scottish Questions, when he undertook to look at it urgently? Has an urgent look been taken? Will he recognise that increased building costs are making it difficult for crofters to take advantage of the scheme?

Mr. Buchanan-Smith: We are looking at that, and we recognise that there are higher costs. I ask the hon. Gentleman to recognise in his turn the other considerable benefits, particularly the rate of interest.

Hospital Beds (Fife)

Mr. Gourlay: asked the Secretary of State for Scotland what is the number of geriatric beds in use in the East Fife Hospitals Board of Management area; what is the earliest date he expects additional beds to be available; and how many.

Mr. Adam Hunter: asked the Secretary of State for Scotland what representations he has had from local


authorities in Fife regarding the provision of geriatric beds in Fife hospitals; and if he will make a statement on the prospects for such provision.

Mr. William Hamilton: asked the Secretary of State for Scotland if he is aware of the shortage of geriatric beds in Fife; and what plans are in hand to expedite an improvement in the situation.

Mr. Monro: There are 288 geriatric beds in use in the East Fife Hospitals Board of Management area at present, including 30 at Cameron Hospital, Windygates, which have been brought into use in the last few weeks. A 30-bed unit at the Adamson Hospital, Cupar, is under construction and is expected to be available for use early in 1976. The planning of 60-bed units at Glenrothes and Kirkcaldy is in hand. A 90-bed unit at Dunfermline, which will improve the West Fife situation, is also in the programme. The total number of new beds provided, being built or being planned for Fife is 270.
The only representations received this year about geriatric beds in Fife were made by Cowdenbeath Town Council in April and at about the same time all the Fife local authorities, in association with the hon. Members, sought a meeting with me.

Mr. Gourlay: Is the Minister aware that that is a thoroughly disappointing reply? Is he aware of the misery and suffering in Fife among old and handicapped people during the last few years? Will he use emergency powers to create some hutted accommodation long before 1976 to alleviate this problem? Will he also consider the clinical barriers existing between the East Fife area and the Bridge of Earn area where, I understand, there could be accommodation for geriatric cases but they cannot be accepted because they are East Fife people? Will he show compassion in this problem and deal with it more urgently than he is doing at the moment?

Mr. Monro: I will consider the point about Bridge of Earn. The hon. Gentleman is being a little unreasonable. I have explained a very full programme. The hospital board fully accepts that there is a shortage in Fife. That is why we are pressing on as fast as possible.

Mr. Hamilton: Is the hon. Gentleman aware that in West Fife alone there is provision of 132 beds whereas 210 is the estimated requirement? While one appreciates what is being projected for the future, right up to 1980, that does not solve the problem now. Will the Minister link this with the important question of encouraging local authorities to provide sheltered housing units, because the average provision in Scotland as a whole, I think, is far below that in England?

Mr. Monro: I welcome the hon. Member's reference to sheltered housing, because we want to encourage all local authorities to press on with it as fast as possible. I appreciate that there is a serious problem in Fife. That is why we have authorised the hospital board to press on with the programme that I have announced as soon as planning is concluded. There is no question of delay.

Mr. Hunter: Is the hon. Gentleman aware that these three Questions about geriatric beds in Fife do not indicate collusion among my hon. Friends and myself? They are simply an expression of spontaneous individual effort. Does not the Minister think that this shows how serious the situation is in Fife and that, in addition to the local authorities, consultants, medical practitioners the Fife Executive Council and many relatives of would-be patients are expressing public concern about the deplorable lack of beds?

Mr. Monro: Of course I accept that there was no collusion; it is natural for hon. Members to express their concern. I know that there is a problem, which I have not tried to minimise over the last two years. What I have said is that we are going ahead as fast as possible with the schemes in the programme. There is no conceivable way of providing beds more quickly.

Sir J. Gilmour: Will my hon. Friend consider giving special help towards looking after elderly people at home while these beds are being provided?

Mr. Monro: I will certainly consider that suggestion.

Mr. Hamilton: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the reply, I beg to give notice that I shall raise the matter on the Adjournment as early as possible.

Sir J. Gilmour: asked the Secretary of State for Scotland what representations he has received about the shortage of orthopaedic beds in Fife hospitals.

Mr. Monro: As well as the representations by my hon. Friend, I have also received representations from the hon. Member for Kirkaldy Burghs (Mr. Gourlay).

Sir J. Gilmour: In view of the unsatisfactory length of waiting time for treatment in the Fife hospitals, will my hon. Friend ensure that priority is given to finance for providing the extra beds, particularly in Victoria Hospital, Kirkcaldy?

Mr. Monro: Phase III of the Victoria Hospital, Kirkcaldy, is in Band V of the hospital programme, and this will provide 100 to 150 acute beds, which I hope will go some way to reducing waiting.

Council Housing

Mr. Ewing: asked the Secretary of State for Scotland what is the average time an applicant is required to wait before being allocated a local authority house in Scotland.

The Under-Secretary of State For Development, Scottish Office (Mr. George Younger): This information is not available centrally.

Mr. Ewing: Is the Minister aware that that is no surprise to us and that there is a suspicion that, even if the information were available, the Government would be so embarrassed that they would be reluctant to give it? Is he further aware that the evidence coming from local authorities is that the housing queues are growing longer? Is he satisfied with the fact that, as a result of his Government's policy, these queues are extending almost week by week? When will the Government give local authorities additional incentives to build more houses?

Mr. Younger: I should make it clear that an average figure for the whole of Scotland would mean nothing, because different authorities have different rules. Many, I regret to say, still have residence qualifications and, therefore, to give an average figure for the waiting lists would be meaningless. But whenever any authorities have outstanding housing needs for which they wish to build, I

encourage them with everything that I can say and do to build more houses—and I hope that the hon. Gentleman will do the same.

Mr. Edward Taylor: Would my hon. friend agree, however, that in many Scottish cities there is an acute shortage of small houses for elderly single people and couples which is not being met, that many of us are aware of single people living alone in four-apartment houses just because they cannot get a transfer to a small house? Will he make an effort to have a major drive among local authorities to build some small houses, because the number of old people increases every year?

Mr. Younger: I agree with my hon. Friend. The Scottish Housing Advisory Committee, of which I am the chairman, has devoted considerable time and effort to considering this very problem for the last year or two. I support what my hon. Friend says and am doing all I can to encourage local authorities to provide more sheltered housing.

Mr. Ross: Does the Minister admit that the queues are lengthening? How can he explain his failure to persuade local authorities to build more?

Mr. Younger: First, the position in each local authority is different. There are some authorities—we have discussed this often before—with a surplus of houses. [Interruption.] There is no point in pretending that that is not so, because it is. There are other local authorities whose queues may be lengthening. If they are, I hope that the right hon. Gentleman will do the same as I do and persuade them to build as many houses as they can. They have every possible encouragement from me, not only verbal but financial, in which respect they now have the best system of encouragement that they have ever had.

Mr. Russell Johnston: Despite what the Minister has said, it is not only a question of persuading the local authorities. In Inverness, for example, the waiting list has jumped from seven months to over two years—

Mr. Speaker: Order. Again, this is Question Time. The point must be put interrogatively.

Mr. Johnston: I apologise, Mr. Speaker. Is the Minister aware that the problem for local authorities in the Highlands, and to a large extent in the Grampians area also, is that there is a great shortage of people to build, no matter that the authorities are desperately keen to build? What proposals do the Government have to solve this problem?

Mr. Younger: I am grateful to the hon. Gentleman for raising that most important problem, as I spent the whole of Friday in Inverness tackling that very problem with the local authorities there. I was glad to be able to announce then that, thanks to the work that has been done by them and by the joint working party which they set up at my suggestion last January, we are now in sight, if the present programmes which they have in hand can be carried through, of a balance between the need for and the provision of houses by the end of next year in that area.

Vandalism

Mr. Dempsey: asked the Secretary of State for Scotland if he will sponsor a conference of chief constables, with a view to devising more effective measures to combat the problem of vandalism; and if he will make a statement.

Mr. Buchanan-Smith: Chief constables already meet together regularly and are very much aware of this problem. In these circumstances, I do not consider that a special conference is necessary.

Mr. Dempsey: Is the Minister aware of the appalling and costly destruction occurring to public services, such as underground passageways, schools, buildings and telephone installations, and even churches, because nothing is sacred to the vandal now? If the Minister meets chief constables, will he suggest that they should consider having more beat policemen and dog handlers, among other things, in order to tackle more effectively the war against vandals?

Mr. Buchanan-Smith: I certainly share the hon. Gentleman's concern about this matter. I am glad to say that I know that the chief constable in his area is very much aware of and worried about this problem. The most important thing, whether one is dealing with vandalism or other aspects of crime, is to have

more policemen on the ground, as the hon. Gentleman indicated. Our review of the establishments of the police force in Scotland is enabling chief constables to recruit more policemen.

Mr. Hugh D. Brown: If and when the Minister meets chief constables, will he urge them not to think that additional powers to search young people will make any significant contribution to this problem? Does the Minister admit the Government's failure to provide enough teachers, at a very difficult stage in the development of youngsters, and enough social workers, which is a direct responsibility of the Government? Will he explain this to the chief constables?

Mr. Buchanan-Smith: Powers of search are an entirely different question. We have debated it on the Floor of the House on previous ocasions. I entirely agree that the whole of this matter must be tackled on an extremely broad front. But I totally deny that the Government are failing to meet their responsibilities in relation to either teaching or the social work departments. At present, the co-operation between those different departments is better than it has ever been in the past.

Mr. John Smith: Is this one of the matters being considered by the Scottish Council on Crime? If it is not, will the Minister refer it to the council so that we can see whether the council is worth having in the light of the report that it makes?

Mr. Buchanan-Smith: One of the precise things that the Scottish Council on Crime is seeking to bring about is greater co-operation between all the different services in the fight against crime generally. This is something that is already happening.

Loanhead Town Council

Mr. Eadie: asked the Secretary of State for Scotland if he will reconsider his refusal to meet Loanhead Town Council and the hon. Member for Midlothian.

Mr. Younger: The town council asked for a meeting with me and I wrote to the hon. Member on 14th September suggesting the basis on which its proposals for sheltered housing should be revised so as to provide a basis for discussion.

Mr. Eadie: Is the hon. Gentleman aware that it is bad enough refusing a deputation an interview but that it is very much worse denying that one was ever sought? Is he also aware that the courtesy that he affords to Loanhead Town Council and to the hon. Member for Midlothian is different—thankfully—from the standards set by his colleagues on the Front Bench who, at all times have displayed the utmost courtesy to me in relation to interviews?
Am I to take it that the hon. Gentleman does not attach the same importance to sheltered housing as his hon. Friend echoed from the Front Bench a minute or two ago? Will he reconsider the position and meet Loanhead Town Council and myself in order that we can get to grips with the problem of sheltered housing in that area?

Mr. Younger: I very much hope that a matter of courtesy does not come into this question. I am concerned to see—

Mr. Eadie: You refused to meet us, George; there is no argument about it.

Mr. Younger: What I am concerned to ensure is that if we have a meeting there is a useful basis for discussion so that the meeting can be fruitful. I am keen to do all I can to encourage the provision of sheltered housing. But I think the hon. Gentleman will accept that no one, on either side of the House, would suggest that we should do this totally regardless of cost. It appears that the design selected by the local authorities in this case would produce housing which was £2,000 per house more expensive than the most optimistic assumption that we could allow. I should be glad to meet the council if it could revise the design first, so that we could have a useful discussion.

Mr. Eadie: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the reply, I beg to give notice that I shall seek an early opportunity of raising the matter on the Adjournment.

Scottish Council's Report

Mr. Lambie: asked the Secretary of State for Scotland what action the Government propose to take on the proposals contained in the report of the Scottish Council (Development and Industry) entitled

"A Future For Scotland"; and if he will make a statement.

The Secretary of State for Scotland (Mr. Gordon Campbell): I understand that the Scottish Council has yet to consider the report which the committee under Professor Nicoll prepared at its invitation. I shall be studying its terms with interest.

Mr. Lambie: Is the Minister aware that the report recommended that priorities must be given to the development of complexes, including oil refining, on the Hunterston peninsula? Is he further aware that on 19th November the Secretary of State for Trade and Industry stated in a Written Answer to me:
It is the Government's policy to encourage home refinery capacity."—[OFFICIAL REPORT, 19th November 1973; Vol. 864, c. 302.]
When will the Secretary of State carry out Government policy and announce a decision on the many applications which are before him for permission to develop steel and oil refining complexes at Hunterston? If he cannot answer that question today, will he say when the Cabinet will be reshuffled, so that we shall get someone else to represent Scotland who can make a decision on these matters?

Mr. Campbell: I presume that the hon. Gentleman has discussed this with the ladies who chained themselves to the railings near the House yesterday. He will know that the decision for industrial development at Hunterston has been taken by me and that the question now is how to use this valuable site for the best possible purposes for the good of Scotland. It is a matter of getting the combination of industry which can make the best use of the deep water at this valuable site.

Mr. Bruce-Gardyne: Once this excellent body has had an opportunity to digest the report, will my right hon. Friend consider putting to it the proposition that it might next investigate something a little more concrete, something like, for instance, the prospect for the family company in Scotland, which plays such a vital part in the prosperity of the country and to which so far the Scottish Council has paid no attention?

Mr. Campbell: The Scottish Council has not yet considered this report or endorsed any of its suggestions. The Scottish Council commissions studies of


various kinds. I am sure that if my hon. Friend got in touch with it about the point that he has raised—

Mr. Bruce-Gardyne: I have done so.

Mr. Campbell: Well, I hope that the council will pursue it.

Dr. Dickson Mabon: In the three and a half years during which the Secretary of State has been at the Scottish Office, nothing has happened at Hunterston. It is true that he has assented to certain planning principles, but is it not the case that he has not approved any of the applications before him, in particular the refining propositions put to him by at least two companies?

Mr. Campbell: No, the hon. Gentleman is wrong. I have given individual planning permission for the iron ore terminal and the necessary paper on that is at present before Parliament.

Mr. MacArthur: Will my right hon. Friend invite this body to declare that there will be no future for Scotland at all if the Labour Party nationalises North Sea oil?

Mr. Campbell: That is a conclusion which many people will have reached without requiring any council to make a pronouncement upon it.

Mr. Ross: How many proposals does the Secretary of State at present have before him for decision in relation to Hunterston? Secondly, when will we get decisions?

Mr. Campbell: There are two main applications before me on this matter, but I could not give a complete catalogue of the applications without notice.

Schools (Hamilton)

Mr. Alexander Wilson: asked the Secretary of State for Scotland if, in view of the nature of the buildings used by pupils and staff of St. Anne's, St. Cuthbert's and Beckford Street Schools in Hamilton, he will include these three schools in his next list of approvals for building projects.

Mr. Monro: I am considering a building programme which Lanarkshire Education Authority has just submitted for primary school improvements to start in 1974–75. Among the projects included

are first phases of two new primary schools, one to reduce the roll of St. Anne's and the other partly to replace St. Cuthbert's. The authority has suggested that the replacement of Beck-ford Street should be considered in connection with the 1975–76 programme.

Mr. Wilson: Is the Minister aware of the unsafe conditions in which the children are being educated and in which the staff are working, particularly at St. Cuthbert's where rebuilding is taking place and there are no fire safeguards; at St. Anne's where the education authority is determined to rebuild in what I consider to be antiquated buildings recently burned out; and in Beckford Street school where the buildings are being shored up?
Will the hon. Gentleman avail himself of the opportunity to visit those schools together with myself as the Member of Parliament concerned and realise that the children are working and being educated in very difficult conditions? Will he agree on a basis of priority that in the 1974–75 programme he should allocate sufficient moneys for complete new annexes at St. Cuthbert's and St. Anne's and that a completely new school should be built at Beckford Street? Will he consider visiting the area as a matter of priority?

Mr. Monro: The education authority's proposals reached my Department only on 9th November. We must have detailed discussions with the authority on those proposals, as I explained to the hon. Gentleman in the first part of my reply. The hon. Gentleman should accept that the Lanarkshire primary school improvement programme is substantial; it is £2·1 million out of a total of about £12·2 million for the whole of Scotland. I accept from what the hon. Gentleman says that the conditions in these schools are far from adequate. That is why the authority has put forward proposals to improve the situation.

Offshore Development (Training)

Mr. Douglas: asked the Secretary of State for Scotland if he will make a statement on his Department's response to the report on Education and Training for Offshore Development.

Mr. Gordon Campbell: I welcome this important and useful report. The working party which produced it included


representatives of the Scottish Education Department and the Scottish Economic Planning Department, and these departments will in the immediate future take part in the Government's discussions with the Petroleum Industry Training Board on several of the report's recommendations.

Mr. Douglas: Without anticipating the answer to a later Question, will the Secretary of State indicate what representations he intends to make to the Petroleum Industry Training Board about this centre for drilling? Will he indicate how much more money will be available through the University Grants Committee and his own Department to institutions of higher education which are likely to be engaged in ventures springing from the report?

Mr. Campbell: One of the recommendations is that there should be further discussions about the centre to which the hon. Gentleman has referred with the Petroleum Industry Training Board, and my Department will be taking part in those negotiations.

Mr. Dalyell: Will the Secretary of State answer the question posed by my hon. Friend the Member for East Stirlingshire (Mr. Douglas)? What is the Scottish Office's attitude?

Mr. Campbell: I cannot answer the question the hon. Gentleman has just put to me without anticipating the answer to Question No. 18, which I shall come to shortly.

Harbour Facilities (John o' Groats)

Mr. Maclennan: asked the Secretary of State for Scotland what assistance he is now prepared to offer for the improvement of the pier and harbour facilities at John o' Groats.

Mr. Buchanan-Smith: The discussions referred to by my hon. Friend the Under-Secretary of State for Development in his reply of 2nd May took place, but revised proposals involving a more expensive scheme were recently submitted on behalf of the county council and these are under consideration.—[Vol. 855, c. 1233–34.]

Mr. Maclennan: Is the hon. Gentleman aware that the revised proposals carry the backing of the Highlands and Islands

Development Board and that the scheme as put forward now would provide for the fishing and the tourist industries? Why are the Government taking so long to push this project forward? Do they not realise that in supporting this scheme for the development of John o' Groats harbour they would be backing a winner?

Mr. Buchanan-Smith: I refute the suggestion that the Government are taking a long time to reach a conclusion. We received the proposals from the county council only at the end of October, and a meeting is taking place this week with officials of the county council. I appreciate what the hon. Gentleman says about the joint nature of these proposals in relation to transport, fishing and tourism. I confirm that the Highlands and Islands Development Board is taking an interest in this matter and might be prepared to lend support.

Mr. Grimond: Is the Under-Secretary aware that I strongly support the hon. Member for Caithness and Sutherland (Mr. Maclennan) in his plea on behalf of John o' Groats harbour; that between June and September no fewer than 11,000 people crossed from John o' Groats to Orkney out of this harbour; that a temporary jetty was sunk, I understand, owing to the activities of a darts club; and that there is an urgent need not only because of fishing but because of tourism to replace this with a more substantial structure?

Mr. Buchanan-Smith: I do not know whether one can play darts at the bottom of the sea at John o' Groats. As regards transport services across the firth, it must be remembered that the Government have already committed more than £1 million towards the provision of proper terminal facilities and that the facilities at John o' Groats, popular as they are, fall into a rather different category.

House Building

Mr. James Hamilton: asked the Secretary of State for Scotland what were the approvals for house building in the first two quarters of each year since 1965.

Mr. Younger: With permission, I will circulate the figures in the OFFICIAL REPORT.

Mr. Hamilton: Will not the Under-Secretary reveal that the OFFICIAL REPORT will show that since 1965 there has been a reduction in the number of approvals both in the public sector and in the private sector? Will he concede that there has been a reduction in the public sector because of the Housing (Financial Provisions) (Scotland) Act and in the private sector because of the present very high interest rates the Government have? Will the hon. Gentleman also reveal to us that the Government's record in comparison with that of the previous Government is absolutely deplorable and a scandal to the country?

Mr. Younger: I take absolutely the opposite view about the present Government's housing policies. The hon. Gentleman will know from these figures, all of which are available already, that the decline in approvals started after 1967 and continued in 1968 and in 1969. I have no doubt that the hon. Gentleman's right hon. Friend the Member for Kilmarnock (Mr. Ross) will tell him the reason for that. The hon. Gentleman might be equally delighted to hear that the record year for approvals was 1972, under this Government. I claim with confidence that the total housing policy of this Government has made a bigger contribution to better-quality housing for the people of Scotland than any previous efforts.

Mr. Bruce-Gardyne: Does not my hon. Friend agree that the primary preoccupation of electors in Scotland is inflation and that to add further to the pressure on the construction industry in Scotland at this time would only make the problem more acute?

Mr. Younger: There is no doubt something in what my hon. Friend says. That is why the recent measures announced by my right hon. Friend the Prime Minister for easing the burden on the construction industry were so very important. We have put such a top priority on housing that it is exempted from, and therefore not affected by, all these measures.

Mr. Robert Hughes: Will not the Government be very lucky if they build 20,000 houses in Scotland this year, and therefore there is no danger of the kind of eventuality mentioned by the hon.

Member for South Angus (Mr. Bruce-Gardyne)? Is the Under-Secretary aware that, despite all his exhortations and the pride he takes in what he does for housing, the figure of 20,000 represents a 40 per cent. drop in the housing available for the people of Scotland? What possible hope is there for the homeless if the Government carry on like this?

Mr. Younger: It does not represent a drop in the housing available for the people of Scotland. The hon. Gentleman must look at our housing policy as a whole. He cannot ignore the fact that we had no fewer than 64,000 houses under improvement this year under our house improvement policy. There are all-time record completions of private houses going on all over Scotland. I should have thought that the hon. Gentleman would be glad to know also that houses under construction total almost 45,000.

Mr. Hamilton: On a point of order, Mr. Speaker. Because of the unsatisfactory nature of the reply, I beg to give notice that I shall raise the matter on the Adjournment.

Following are the figures:


PUBLIC SECTOR HOUSES*


Approvals in the first two quarters of each year


1965
16,961


1966
13,315


1967
18,519


1968
14,461


1969
13,030


1970
10,239


1971
8,814


1972
20,196


1973
4,475


The uneven figures for 1972 and 1973, which have a balancing effect on each other, resulted from the favourable residual subsidy arrangements under the Housing (Financial Provisions) (Scotland) Act 1972.


*Local authorities, new towns and Scottish Special Housing Association.

Feeding Stuffs

Mrs. Hart: asked the Secretary of State for Scotland if he will take steps to assist Scottish dairy farmers; and if he will propose a subsidy for either feeding stuffs or for milk.

Mr. W. H. K. Baker: asked the Secretary of State for Scotland what representations he has received from the National Farmers' Union of Scotland with regard to the increase in costs of


animal feeding stuffs; and what replies he has sent.

Mr. Strang: asked the Secretary of State for Scotland what effect the recent increases in cereal prices is having on liquid milk supplies in Scotland; and if he will make a statement.

Mr. Buchanan-Smith: Concern on the level of feeding stuffs prices has been expressed by the National Farmers' Union and also by the three milk marketing boards, which have reported that milk production in Scotland is now marginally below last year's level. This has not, however, affected supplies for the liquid market, which are fully adequate.
The forthcoming annual review will give the opportunity for full consideration of the problems and prospects of those sectors of the industry affected by increased feed costs.

Mrs. Hart: Is the hon. Gentleman aware that the annual review will be too late to deal with the problem which now faces Scottish dairy farmers? Has he ever known dairy farming in Scotland to be in such a state of crisis as it is at the moment? Have he or his right hon. Friends ever had such a degree of anger expressed to them by the dairy farmers? Is this not a crisis entirely of the Government's own creation, which could be solved if there were a subsidy either on feeding stuffs or on milk?

Mr. Buchanan-Smith: With respect, the right hon. Lady must not exaggerate the situation. I ask her to recall the position in the autumn of 1970 when we took over the country's agricultural policies and when the degree of indignation was far greater than it is today. I certainly acknowledge the problems faced by the dairy industry because of the cost of feeding stuffs, but we believe that the right place to deal with these is at the annual price review. As the right hon. Lady must be aware, my right hon. Friend the Minister of Agriculture announced last week that he is bringing forward the discussions on the annual price review and that the first session will start on 6th December, which is very early indeed.

Mr. Baker: Can my hon. Friend assure the House that the added costs will be recouped by the dairy industry

and by other sections of the agricultural industry, which are feeling the pinch at this very moment?

Mr. Buchanan-Smith: Obviously I cannot anticipate the outcome of the annual price review. It is intended, however, that the milk committee of the National Farmers' Union should meet with the Department of Agriculture in the week after 6th December in order to discuss the precise situation and difficulties facing the industry.

Mr. MacArthur: Is my hon. Friend aware that the sympathetic replies to letters and questions are very much appreciated but do not dispel the concern which many hon. Members feel about the problems facing the dairy industry? Can he give the House any more information about the speeding-up of the annual price review? For example, is it possible for a statement of intent on dairying to be made well before the publication of the full findings of the annual price review?

Mr. Buchanan-Smith: I must repeat what I said earlier. Obviously I cannot anticipate the outcome of the annual price review, but I think that the Government have given proof of their intentions by bringing forward the date of the discussions very considerably compared with previous years. I also ask my hon. Friend and the House to bear in mind that the other incomes of dairy farmers, from the prices of cull cattle and calves, are at a very much better level than they have ever been in the past.

Mr. Strang: While the Opposition would be the first to admit that many farm incomes have benefited substantially by increased prices for cereals and other commodities, surely the Minister will recognise that many dairy farmers, particularly in the West of Scotland, are facing a real crisis which is being reflected in the amount of milk coming from these farms. Can the hon. Gentleman at least assure us that action will be taken by the Government to alleviate this problem before the end of the year?

Mr. Buchanan-Smith: Hon. Gentlemen should also take account of the fact that over the last three years of Conservative Government the incomes of dairy farmers after costs are taken into account have very considerably improved. The


hon. Gentleman may not know, but costs are deducted before incomes are calculated, and incomes more than doubled between 1970–71 and 1972–73, so that the state of the industry is very much stronger than it has been for many years. I do not deny for one moment the difficulties which the industry faces, but I believe it is confident that the Government are prepared to act at the proper time. I particularly remind the hon. Gentleman that in 1969–70, the last year of the Labour Government, the net price per gallon of milk which farmers received was 17p whereas the price in 1973–74 is estimated to be over 21p. That is a measure of what the Conservative Government have done for the dairy industry.

Mr. David Steel: Does the Under-Secretary of state accept that many dairy farmers are suffering a loss of income of about 40 per cent.?

Mr. Buchanan-Smith: I accept that dairy farmers and facing very much higher costs, but at the same time there are higher incomes whom certain aspects of their production. These are all matters which will feature  our discussions with the National Farmers' Union and with all three milk marketing boards, and we have undertaken to take them into account at the price review.

Mr. Ross: Is the Under-Secretary suggesting that the dairy farmers in the West, and others who have specialised and have not had the advantage of higher prices, are shouting about nothing at all? Is he suggesting that this is a "phoney" crisis in the dairy industry?

Mr. Buchanan-Smith: The right hon. Gentleman should know better than to try to put words into my mouth I said a few moments ago that I acknowledge the problem which they are facing, and I know that the leaders of the National Farmers' Union and the milk marketing boards appreciate that I acknowledge it. What I ask the right hon. Gentleman and his hon. Friends to take into account is that all is not bleak in the industry. There is other income, even on the specialist farms, than that which comes simply from milk, because there is income from beef and from the sale of calves. But I know very well from the history of the right hon. Gentleman's party that farmers cannot look for much help in that direction.

A9, Perth-Inverness

Mr. MacArthur: asked the Secretary of State for Scotland what is his latest estimate of the cost of improving the A9 Perth-Inverness road; and when the reconstruction work will start.

Mr. Younger: In 1972 the preliminary estimate of the cost of the new road from Perth to Inverness was £43 million. In addition there is a major scheme for the A9 north of Inverness, creating a shorter route across the Black Isle. Work at the Almond Bridge, near Perth, started on 19th November; work on other schemes will follow shortly.

Mr. MacArthur: May I thank my hon. Friend for the good news that this important work has now started? Will he confirm that the rebuilding of the A9 will completely remove the blind corners and other impediments to vision? Further, will he confirm whether I am right or wrong in calculating that this investment approaches £400,000 per mile?

Mr. Younger: I certainly agree with my hon. Friend that it is indeed good for the Highlands to see at last a complete and major reconstruction of this vital road. I can confirm that it will be built to the most excellent modern standards, ironing out all the bad bends and bad gradients which have caused so much difficulty so far. I am afraid that my mental arithmetic is not quite so agile as my hon. Friend's but his calculation of the cost per mile is probably very nearly correct.

Mr. William Hamilton: Is the hon. Gentleman aware that not everybody agrees with the increasing investment in roads at the expense of the railways? The railway line in this area carries a great deal of freight, and will increasingly carry much more of the heavy freight as a consequence of North Sea oil development. The Government's public investment programme would be much more worth while if it were redirected towards rail rather than towards roads.

Mr. Younger: That is a very interesting point, but questions regarding investment in rail are really not for myself and are for my hon. Friends who deal with rail policy. I would say only that I honestly think that, with the development of North Sea oil, the area around the


Moray Firth will need first-class road and rail links. This Government are providing first-class road links for the first time.

Mr. Maclennan: If the Minister recognises, as he apparently does from his reply to the last Question, that the oil-related development in the Moray Firth area calls for an improvement in the roads, why does he not now put into the Government's rolling programme the scheme for bridging the Dornoch Firth and rerouting the A9 north of Tain?

Mr. Younger: I know of the hon. Gentleman's very strong interests. As he knows, my right hon. Friend recently announced that further studies were being made. I would say only that we accept that the Dornoch bridge is a desirable project which will have its place in the programme. But I do not think anyone can accuse the present Government of being niggardly with money for the A9. It is a massive scheme which those in the Highlands have wanted for a long time, and I hope they will feel that it is all worth while.

Aberdeen

Dr. Dickson Mabon: asked the Secretary of State for Scotland when he next intends to pay an official visit to Aberdeen.

Mr. Gordon Campbell: I have no immediate plans for an official visit, but I am to be in Aberdeen again shortly. I have visited Aberdeen on three occasions this year and my noble Friend the Minister of State and my other ministerial colleagues at the Scottish Office are frequently there.

Dr. Mabon: Is the Secretary of State aware that, despite these visits, there is great disappointment that, following the publication of the report on education and training for offshore development of North Sea oil and gas, university provision has to be divided between Imperial College in London and University College in Aberdeen? Is he also aware that, in relation to matters for which he is directly responsible—namely, Robert Gordon's and the other institutes of higher education—there is very great concern in Scotland that the new centres either for drilling technology or for rig and platform design and construction ought to be in Scotland, but not necessarily

in Aberdeen exclusively, and not south of the border?

Mr. Campbell: I think that the hon. Gentleman is prejudging decisions upon the report of the working party, which has only just been published, and has simply been reading some speculation in the Press. No decisions have been taken and one of the matters which he has raised is the subject of a following Question.

Drilling Technology

Mr. Dalyell: asked the Secretary of State for Scotland what action he has taken to promote the case for a United Kingdom centre for drilling technology to be set up in Scotland.

Mr. Gordon Campbell: The Scottish Office was represented on the interdepartmental working party which recommended the establishment of such a centre. I am ensuring that, in the further discussions to be held between Departments and the Petroleum Industry Training Board, the case for locating the proposed centre in Scotland will be kept under full consideration.

Mr. Dalyell: What is the time scale involved?

Mr. Campbell: The meeting should take place within the next few weeks.

Mr. Laurance Reed: Do the Government understand that projects like Concorde, Maplin and the Channel Tunnel pale into insignificance compared with the urgency of digging up the Continental Shelf for oil? Is it yet understood that, if we are to do this rapidly, the Government will have to back technology in this field as handsomely as in the case of other projects?

Mr. Campbell: I think it is generally agreed that the programme of exploring for oil and extracting it from the North Sea bed is one which the Government have encouraged and is going on speedily. There was a recommendation in the report of the working party it is paragraph C.49—that there should be further discussions on where and how a centre for this technology should be set up. In my view, there is a very strong case for this to be in Scotland.

Mr. Douglas: Will the right hon. Gentleman acknowledge that there are


considerable sums involved in terms of anticipation of royalties and revenue? Is he aware that a conservative estimate is that the sum might be £1,200 million per annum by 1985? Will he say how much lie and his right hon. Friend the Secretary of State for Education and Science will devote to this very important area of educational research?

Mr. Campbell: It is not possible to make estimates so far ahead as the date which the hon. Gentleman has mentioned. They naturally depend upon the tax rates at the time and their impact on the companies concerned. As the hon. Gentleman will be aware, no royalties start to come until the oil starts to flow.
On the question of education, as I have said there is a very strong case, without going into the question of future royalties, for a centre of this kind to be established in Scotland.

Mr. Robert Hughes: Will the right hon. Gentleman give a commitment that money will be spent now on these developments? It is no use waiting until the royalties come. We need action now if we are to get any benefit from educational prospects.

Mr. Campbell: It is not a question of money. It is a question of the setting up of the centre. As I have said, the recommendation in paragraph C.49 of the working party's report—and the Scottish Office was represented in that working party—was that there should be further discussions, including the Petroleum Industry Training Board, and these will be taking place in the very near future.

Teachers (Lanarkshire)

Mr. John Smith: asked the Secretary of State for Scotland if he will make a statement on the shortage of teachers in Lanarkshire.

Mr. Monro: I am concerned that there is a general shortage of secondary school teachers in Lanarkshire, and I have arranged to discuss the situation with representatives of the education authority on 10th December.

Mr. Smith: Will the hon. Gentleman confirm that this is a desperately serious problem? Is he aware that the county of Lanarkshire is 300 teachers short and

that the shortage is badly distributed, so that certain areas such as Shotts and Chryston are bearing a very heavy share of the burden arising from this shortage of teachers?
Will the hon. Gentleman look into the need to help the county with a view to distributing teachers to priority areas, and will he immediately increase the allowance to teachers in designated schools?

Mr. Monro: I accept that there is a serious situation in Lanarkshire—certainly the worst in Scotland. That is why I shall be glad to meet the authority on 10th December. I am not able to increase the number of designated posts this session because, as the hon. Gentleman knows, I have already increased the number to Lanarkshire and there are no more available in the present session.

Mr. Lawson: Can not the hon. Gentleman pay more attention to the question of a better distribution of the teachers in a given area? He will recall that he has already pointed out that part of the problem in this area is the maldistribution of teachers. Is it impossible for the Scottish Office and the Department of Education and Science to do something about this problem of maldistribution, even if at the moment we cannot find any more teachers?

Mr. Monro: I accept what the hon. Gentleman says. The situation is due largely to maldistribution. But within an authority area it is for the authority to try to come to some understanding with the teachers, even for temporary movements to schools in the greatest need. These are points which, along with any other inducements such as housing, I shall discuss with the authority next month.

Springburn (Redevelopment)

Mr. Buchanan: asked the Secretary of State for Scotland what progress is being made in the redevelopment of the Springburn district of Glasgow and in the construction of the Springburn expressway.

Mr. Younger: Redevelopment proposals for Springburn were approved earlier this year, and I expect formal confirmation of related compulsory purchase orders to be given very shortly.
The Springburn expressway is a matter for Glasgow Corporation and Lanark County Council. No proposals for its construction have yet been submitted to the Secretary of State.

Mr. Buchanan: Is the hon. Gentleman aware that I am gratified at the speed with which the proposals have gone through the development department? Is he aware that many parts of the Spring-burn district are lying derelict awaiting formalisation of the plans for the expressway? Will the Government consider denoting clearly to the people in the area why such demolition is taking place, whether for houses, schools, expressways or factories? Secondly, with regard to the expressway, is the hon. Gentleman aware that this is the most congested route out of Glasgow to the North and that it should not be unduly delayed by a lack of decision on where or why the expressway should bypass Bishopbriggs?

Mr. Younger: I agree that this is a matter of deep concern to all those who live in the hon. Gentleman's constituency. That is why we have been doing all we can to speed this up. It is at the moment a question of waiting for the corporation and the county council to produce their proposals for the expressway. When they have produced their proposals I will consider them as quickly as I can and will see whether I can do anything to bring home to the people in the area the reasons why this redevelopment has to take place.

Murder (Penalties)

Mr. Edward Taylor: asked the Secretary of State for Scotland whether he has completed his consideration of the Report on Penalties for Murder by the Emslie Committee; and if he will make a statement.

Mr. Buchanan-Smith: My right hon. Friend is not yet in a position to make a statement on this matter.

Mr. Taylor: Did my hon. Friend study carefully the answer which he gave to me yesterday showing that the number of convictions for murder last year was more than four times the total for the year before abolition of capital punishment? Bearing in mind the seriousness of the problem and the clear pledges which we gave to the electors of Scotland at the last election, does not my hon.

Friend think that the Government are treating the matter with an abysmal lack of urgency? When will a decision be arrived at?

Mr. Buchanan-Smith: I ask my hon. Friend to be careful in the statistics which he uses and not necessarily to take years of murder statistics which are the most serious. I share with my hon. Friend his concern at the number of murders. I am even more concerned about the general level of violence overall, which is a much more realistic figure that the figure for murders alone. I assure my hon. Friend that I take the matter extremely seriously, and we hope to come to a decision shortly.

Mr. Ronald King Murray: Is the hon. Gentleman aware that there is a need for urgency here? As it is possible that a difference in view north and south of the border may be holding things up, will he tell us whether any efforts have been made to reconcile that difference in view?

Mr. Buchanan-Smith: I am grateful for the hon. and learned Gentleman's concern. Of course there is general public concern in these matters, and rightly so. The hon. and learned Gentleman is correct. There is a difference of opinion north and south of the border on this matter. I can assure him that consultations have taken place.

Orkney and Shetland

Mr. Grimond: asked the Secretary of State for Scotland what proposals he has for strengthening the public services such as health, welfare, education and the police in Orkney and Shetland, in view of the likely extra demands upon them associated with the discovery of oil.

Mr. Gordon Campbell: I am watching the situation carefully along with the authorities concerned to ensure that public services are maintained at a level consistent with demand.

Mr. Grimond: Does the right hon. Gentleman agree that the time has come for action? Does he recognise that the pay freeze has made it extremely difficult to recruit people and even to keep people in public service? Although the shortages are admittedly at present very small, does the right hon. Gentleman agree that the situation is worsening?


Does he accept that Orkney and Shetland should be put in a position so as to be able to deal with the present situation?

Mr. Campbell: I am much aware, as the right hon. Gentleman knows, of the impact which the new North Sea oil situation is having on Orkney and Shetland. I hope that he will bring to my notice any matters which he has in mind. We are keeping a general watch on the situation.

CROWN AGENTS

The Minister for Overseas Development (Mr. Richard Wood): With your permission, Mr. Speaker, and that of the House, I would like to make a further statement on the Crown Agents. In my statement last year, I said that I welcomed the findings of Sir Matthew Stevenson's Committee, that the interests of the Crown Agents' principals and others would best be served by the continuation of the whole range of services which the Crown Agents provide. I also accepted recommendations that the status, structure and responsibility for the Crown Agents should be clearly defined, and that they should bear an appropriate liability to taxation.
The Crown Agents originally came into being primarily to provide certain financial and purchasing services in Britain for countries which were then dependent. The range of their services, conducted on a non-profit making basis and contributing to the development of the countries concerned, has been progressively made available to a large number of countries, most of them now independent. The scope of their activities has also been extended to cover a wide range of technical and financial services.
The Crown Agents have adapted their organisation and structure over the years in order to meet these widening requirements, and in particular have established certain of their services on the basis of fully-owned subsidiary companies staffed by Crown Agents' personnel. In the light of the Stevenson Report, I have agreed that this process should be extended by the establishment of further wholly-owned subsidiary companies to deal with the specialised financial services of the Crown Agents. The boards of management of those companies will include non-executive directors appointed after consultation

with me, as well as executive directors drawn from the Crown Agents' staff. The Crown Agents intend that the investment policy pursued by these companies should be generally in accord with the trustee analogy and should be fully consistent with their name and standing. These subsidiary companies will be subject to taxation in the normal way, and arrangements are also being made to bring any profits which may be made by the headquarters' organisation itself within the scope of normal taxation.
The Crown Agents will, as in the past, be appointed by the Secretary of State, or by myself acting on his behalf, for the purpose of carrying out the various services on behalf of the overseas principals. They will thus remain answerable finally to Ministers, but it is neither my intention nor my desire to disturb the traditional practice under which the operations of the Crown Agents on behalf of their overseas principals have been discharged on a basis of non-intervention by Ministers.
In the future, as in the past, the scale and scope of the Crown Agents' operations will depend on the confidence which overseas governments and authorities repose in the organisation. That confidence is fully reflected in the present scale of operations, and I am particularly anxious that the arrangements I have mentioned, which are designed to produce a more readily comprehensible structure and to define the various functions more clearly, should in no way disturb that confidence. I have made this clear to the main overseas principals when I told them the outline of the new arrangements.
Finally, I should once again like to take this opportunity of thanking Sir Matthew Stevenson and his Committee for its report, and of sincerely endorsing the tributes which it paid to the work of the Crown Agents.

Mrs. Hart: I thank the right hon. Gentleman for his statement. As he knows, we have waited for it for a long time. First, I endorse what he said about the confidence which principals may continue to have in the work of the Crown Agents. It is important to say that that is endorsed by both sides of the House.
The Opposition are aware that the present financial operations of the Crown Agents involve them in at least £50 million worth of investment in equities and


that some of the equities had rather unfortunate results last year. It seems from his statement that he is proposing not to change basically the relationship between himself and the Crown Agents. The right hon. Gentleman will continue to appoint but, as he knows, one of the great problems this was my opinion when I was his predecessor in office—is that the power to appoint Crown Agents has no corresponding responsibility on the part of the Crown Agents to report to Government. Will there be any change in that respect?
The right hon. Gentleman said that the Crown Agents will remain answerable finally. In what way will they be answerable? Will they report to him? Will the report be published? Will it be available to hon. Members? Will it be subjected to parliamentary questioning?
The right hon. Gentleman says that in the new extended financial operations of the Crown Agents there will be non-executive directors appointed after consultation with him. What precisely will be their non-executive functions? He says that the companies will have to act, will be expected to act or will be intended to act in accord with the trustee analogy. Will he tell us precisely what he means? Does he mean that they are not to have equity shares or equity shares of a speculative character? How does he propose to prevent that happening? Will they no longer invest in property companies?
Depending on the right hon. Gentleman's answers, it may well be that we shall wish to explore the matter in greater depth.

Mr. Wood: The suggestion which I have made to the Chairman of the Crown Agents is that he should be willing—and he agrees—to discuss with me any important developments or changes in the policy of Crown Agents.
The function of non-executive directors will be similar to the functions of such directors of other companies of all kinds-namely, to give advice and to help in the taking of decisions by the companies with which they are connected.
The investment policy pursued by the companies should be carried out in accord with the trustee analogy and should be fully consistent with the Crown Agent's

name and standing. That means that they will be guided largely by the trustee analogy but not prevented from making investment outside that analogy if the companies so decide.

Sir Bernard Braine: Is my right hon. Friend aware that his statement will be welcomed by all who recognise the importance of the Crown Agents' work, who have been concerned about critical comment which has recently appeared in the Press? So that we may get the matter into perspective, will he confirm that the success of the Crown Agents' investment policy on behalf of the governments of many developed countries has contributed to those governments placing additional funds and additional orders with Great Britain?

Mr. Wood: I entirely agree with my hon. Friend. The confidence that is shown by the principals in the Crown Agents is unmistakeable. I believe that as a result of my statement the principals will take the view that the Crown Agents are strengthened to do the job for the principals which they have been doing and which they will continue to do.

Mr. David Steel: While the right hon. Gentleman's statement may strengthen the Crown Agents, will he answer the question posed by the right hon. Member for Lanark (Mrs. Hart) about parliamentary answerability and the link between the Crown Agents' work and the Minister's rôle?

Mr. Wood: I do not think that it would be right for discussions between myself and the Crown Agents about the development of their policy to be reported to parliament. I do not believe that that would be in the interests of the relationship between the Crown Agents and the principals. To an extent that must be a confidential relationship. It would be wrong for such matters to be discussed in Parliament because this relationship between the Crown Agents and the principals would be gravely undermined.

Mr. George Cunningham: Will the right hon. Gentleman acknowledge that nothing in his statement reflects the fact that, apart from the operations which the Crown Agents have undertaken on behalf of principals overseas, they have raised


on the market £34 million and invested that as they pleased without being answerable to their own chief principals? Will the right hon. Gentleman acknowledge that there will be amazement in the Press and elsewhere that he has made his statement without mentioning that the director of finance of the Crown Agents until a few weeks ago has been appointed the deputy chairman of First National Finance Corporation, a company in which the Crown Agents have an 8½ per cent. ordinary share holding, 6 per cent. of it being held on behalf of overseas principals?
Does the right hon. Gentleman intend to say nothing about the fact that Crown Agents' money has gone into the notorious property empire of John Chalk and Timothy Gwyn-Jones? Will he recognise that there is a scandal which is waiting to blow? Unless we investigate the matter fully with sufficient openness but with confidentiality to reflect the circumstances, the traditional work of the Crown Agents, which is of enormous value throughout the world, will inevitably be prejudiced.

Mr. Wood: The purpose of the Crown Agents indulging in the activities to which the hon. Gentleman refers is largely to build up the reserves of the Crown Agents, which are largely to the benefit of the principals themselves, and the principals have shown their confidence in this policy. I understand that the hon. Gentleman has a Question to put to me next week about the appointment of Mr. Challis, but, having made this statement today, I should tell the hon. Gentleman that the Chairman of the Crown Agents, when the appointment was mooted, considered Mr. Challis in the way in which a civil servant would be considered. He consulted me, and I consulted others. I therefore share the responsibility for it. I had no reason to object to this appointment because I believed that it was in line with the rules that apply to the Civil Service.

Mr. Hordern: Is my right hon. Friend satisfied that he has the consent and approval of the Crown Agents' principals to these proposals? Would he agree that nothing should be done that could impair the close confidence which the Crown Agents' principals of various Commonwealth countries have in the operation of the Crown Agents' themselves? Would he

also accept that the Commonwealth countries are perfectly capable of deciding who should look after their own affairs?

Mr. Wood: I am entirely in agreement with my hon. Friend. I believe that the assent of the principals to these arrangements is of immense importance, and that is the reason why I took the opportunity to tell them what was happening. I believe that my statement will do nothing to damage the confidence that exists between the principals and the Crown Agents.

Mr. Dalyell: In relation to the trustee analogy, may I confirm that the Minister used the phrase "if the companies so decide"? Does this mean that speculative investment can go on without his Department being told?

Mr. Wood: It means purely that the trustee analogy will not be wholly restrictive, that the Crown Agents can make investments, if they so choose, outside the trustee analogy, and would be guided in doing so not only by the executives of the Crown Agents' staff themselves but by the non-executives, who would be appointed after consultation with me.

Mr. Skinner: Would the right hon. Gentleman go even further and issue an instruction to the Crown Agents to stop any investment in these slum property speculations?

Mr. Wood: No, Sir.

Mr. Costain: Does my right hon. Friend see any different relationship between the Crown Agents and Millbank Services?

Mr. Wood: No, Sir. There is no connection.

Mr. Freeson: The Minister gave a scandalous answer to my hon. Friend the Member for Bolsover (Mr. Skinner), who asked whether any instruction would be given by the right hon. Gentleman to the Crown Agents to cease investments in slum property. Is the right hon. Gentleman aware that there is critical concern about activities in this direction? Is he further aware that in such a matter there is a balance of responsibility and confidence between the principals overseas and this House and this country? Surely any decision he takes should reflect that


as well? Will he think again about his answer to my hon. Friend?

Mr. Wood: I said, "No" to that question because the Crown Agents have neither made nor contemplated making such investments.

Mr. George Cunningham: Nonsense.

Mr. Wood: I will elucidate. I think the hon. Member for Islington, South-West (Mr. George Cunningham), with his great interest in this matter, has in mind certain investments made in the First National Finance Corporation. This is a company in which the Crown Agents have a limited financial interest. The Crown Agents have not made investments in slum property. There were investments made by the First National Finance Corporation. I have no doubt, and never have had any doubt, about the integrity of the Crown Agents. We can all have our judgment of their judgment. The hon. Gentleman has his judgment about their judgment. The principals also have their judgment about the Crown Agents' judgment and have expressed their confidence clearly.

Mrs. Hart: Amongst the investment subsidiaries of the Crown Agents have been a 51 per cent. controlling interest in the English and Continental Property Company and substantial interests in Metropolitan Properties Limited, and many of the property companies they have invested in during the last few years have certainly been speculative. The right hon. Gentleman says that the trustee arrangements are proposed to hold good, and the question is whether he proposes that those arrangements will or will not exclude property dealings. [HON. MEMBERS: "Oh."] I think hon. Members opposite are a little less informed about this matter than are some of my hon. Friends.
What matters here is whether the right hon. Gentleman is prepared to say to the Crown Agents that these new arrangements on the trustee analogy should exclude investments in speculative property developments. This is the point about which the Opposition are rightly concerned. The right hon. Gentleman has said that the Crown Agents will finally be answerable to him, but he is, of course, answerable to this House.

What is to be the relationship between his answerability and their answerability to him, because the situation is profoundly unsatisfactory? Finally, what is to be the position about the personal shareholdings of nominee directors?

Mr. Wood: I hope I can remember all the right hon. Lady's questions. The question of answerability is dealt with in the fact that the Crown Agents are appointed by the Secretary of State or by myself and therefore they are answerable to us in the final analysis.
I am sorry, but I cannot remember the right hon. Lady's next question.

Mrs. Hart: How is the right hon. Gentleman to be answerable to Parliament for them?

Mr. Wood: I am answerable to Parliament. That is obvious at the moment, when I am being asked so many questions.

Mr. Cunningham: The first time in three years.

Mr. Wood: It is not the first time in three years. I have been bombarded by questions and I have done my best to give as full answers as possible. That deals with the question on answerability.
Perhaps the right hon. Lady will remind me of her other questions. I am afraid that I did not write them down.

Mrs. Hart: There were two other questions. The first was whether trustee shareholdings should exclude speculative property investment, and the other concerned the position of personal shareholdings of nominee directors.

Mr. Wood: On the question of trustee shareholdings, I said that the policy should be carried out
… in accord with the trustee analogy and should be fully consistent with their name and standing.
I think the right hon. Lady would be wrong to get this matter entirely out of perspective. The percentage of the Crown Agents' investment at the present time in property is 1 per cent. and therefore—

Mr. Cunningham: How much money?

Mr. Wood: Not very much. As I was saying, the right hon. Lady is over-estimating the problem.
I made a fairly full statement about the personal holdings of the Crown Agents in the investment companies concerned on a previous occasion, and I do not think I can add to what I said then.

SUB JUDICE RULE

Mr. Speaker: On Monday afternoon this week, the hon. Member for Caithness and Sutherland (Mr. Maclennan) raised a point of order about a reply given by the Under-Secretary of State for Trade and Industry to a supplementary question by the hon. Member for Rugby (Mr. William Price). Reference was made to certain criminal cases, including one where an appeal is pending. Although I am satisfied that the reference was not intended to be prejudicial to the hearing of the appeal, in my view it would have been better if it had not been made in that context.

The Under-Secretary of State for Trade and Industry (Mr. Peter Emery): On Monday, Mr. Speaker, in trying to reply helpfully to a supplementary question from the hon. Member for Rugby (Mr. William Price), I used a phrase which I thought was in order. At no time would I wish to breach the traditions of the House. I immediately bow to your ruling, Sir, and I ask the House to accept my sincere apology.

Mr. Maclennan: I am grateful to you, Mr. Speaker, for clarifying what is, I think, a difficult area of our rules and procedures, and I am sure that the House will be grateful also to the Minister for his remarks.

SCHOOL BUILDING PROGRAMME

Mr. Cyril Smith: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration; namely,
information which has been conveyed to me today that the Government are seriously attempting to delay the school building programme for a much longer period than the 10 to 12 weeks envisaged in their circular dated 12th October, sent to all local authorities.

I have today met the Under-Secretary of State for Education and Science, the noble Lord, Lord Sandford, about the school building programme in my constituency. I pointed out to him that many legal contracts agreed with builders should have been signed by 30th September 1973, and that unless these contracts could be quickly signed the building contractors might require them to be renegotiated on cost. I pointed out, further, that the consequence of that would be effectively to delay the programme not for 10 to 12 weeks but for six to nine months, and that what that meant was a real cut in the school building programme. To my great surprise, the Under-Secretary of State advised me that—I quote his words—"that was the object of the exercise".
I therefore submit, Mr. Speaker, that this whole question is now a matter of urgency and of specific importance. It is urgent because the building programme now in question throughout the country affects school places for September 1975, and days—let alone weeks—are now vital in planning these school programmes and places.
It is specific because local authorities throughout the country are seriously and adversely affected by this latest turn of events, and because, too, the Government should be compelled to come clean about their intention in relation to the school building programme and to state specifically by how much the programme is to be cut, whether by direct or indirect methods.

Mr. Speaker: The hon. Gentleman gave me notice soon after one o'clock of his intention to make his application. My decision in no way reflects on the merits. I have simply to decide whether his proposition should be given precedence over the other business of the House. I regret that I cannot give it precedence.

BALLOT FOR NOTICES OF MOTIONS FOR FRIDAY 7TH DECEMBER

Members successful in the Ballot were:

Mr. Dennis Skinner.

Mr. S. C. Silkin.

Mr. Spencer Le Marchant.

Orders of the Day — STATUTORY CORPORATIONS (FINANCIAL PROVISIONS) BILL

Order for Second Reading read.

Mr. Speaker: Before I call the right hon. Gentleman to move the Second Reading, I must inform the House that I have not selected the amendment.

Mr. Jeremy Thorpe: On a point of order, Mr. Speaker. I wonder whether you could give us guidance. Of course, the House accepts your ruling, but you will be aware that it is a reasoned amendment which my right hon. and hon. Friends and I have put down. I think that it will be generally accepted also that we are about to debate a matter which involves lavish expenditure, on which there appears to be tacit agreement between the two Front Benches. May we take it, Mr. Speaker, that your decision—which we do not challenge—should in no way be taken as a precedent for suggesting that only reasoned amendments tabled by the official Opposition have any chance of selection?

Mr. Speaker: I must decide each case on its merits, and I decided this one on its merits. I think that the right hon. Gentleman and his hon. Friends will be able to use in the Second Reading debate all the arguments that they could use in support of their amendment.

3.55 p.m.

The Chief Secretary to the Treasury (Mr. Patrick Jenkin): I beg to move, That the Bill be now read a Second time.
I am sure that I am not alone in feeling sad, as we embark on a debate about the nationalised industries, that one familiar voice in these debates will no longer be heard in the Chamber. I refer, of course, to the late Sir Gerald Nabarro. Whether one agreed with him or not, most of us recognised that he brought to this subject a real understanding of the issues, an understanding which even his combative style could not obscure. We shall all miss him very much.

Hon. Members: Hear, hear.

Mr. Jenkin: The Bill has two separate and distinct purposes. The first three

clauses and the first schedule make provision for compensating certain of the nationalised industries for the consequences of price restraint. The second purpose, embodied in Clause 4 and Schedules 2 and 3, is to extend and tidy up the powers of various nationalised industries and other public bodies to borrow overseas.
The provisions dealing with compensation for price restraint are the inevitable consequence of policies pursued by the Government as part of our counter-inflation policy. They do not in any sense represent a new departure.
The same can be said of the provisions relating to the borrowing powers. All the new powers which the Bill extends to the bodies mentioned in Schedules 2 and 3 exist already in one form or another in relation to one or more nationalised industries. What we are doing is bringing these various powers into line.
Thus, my speech will have two distinct parts. I must, however, make the point at the outset that in no sense is one part of the Bill a consequence upon the other. Either could have stood on its own. I come straight away, then, to compensation for price restraint.
In one sense, the Bill is not about the rights and wrongs of the price restraint policy itself. We are here concerned only with the consequences, with the compensation which must be paid for price restraint and particularly with the method and amount of the payments, most of them, let it be said, retrospective. Nevertheless, I am sure that the House will expect me to say a few words about why the Bill is necessary.
The House will be familiar with the pattern of events since the Government decided in July 1971 to match the initiative of the Confederation of British Industry in voluntary price restraint by asking the nationalised industries to observe a similar restraint. We thought long and hard before embarking on this policy because we were, and are, very well aware that a price has to be paid for acting directly on the retail price index and on industrial costs.
Part of the price, of course, is the direct financial compensation for which the Bill makes provision. Another part is the additional borrowing which the industries incur to offset the loss of revenue over


and above any compensation which may be paid.
A more indirect disadvantage comprises the difficult problems of morale and management in the industries which interference with prices inevitably entails; and, for the Government, there is the inevitable weakening of financial discipline in the industries which it must be the purpose of any Government to seek to maintain. Finally, in the longer term there is the risk of artificially enhanced demand leading to extra investment.
I mention those matters at some length because I want the House to recognise that the Government fully understand all the disadvantages which this policy entails.

Mr. Peter Rost: Would my right hon. Friend not also include the price of the disincentive to efficiency which this is likely to bring about?

Mr. Jenkin: I do not want to speak too long, and I intended to include that matter when talking about the problems of management and morale. But I accept my hon. Friend's point. This is another facet of the situation.
I also accept that all this adds up to a strong case for not interfering with the prices of nationalised industries. I can quite understand those who argue that the gain in the form of containing the retail price index to a lower level than it otherwise might have been is outweighed by these manifest disadvantages. In ordinary circumstances this is a point of view which would attract a good deal of support in all parts of the House. But we have not been living in normal circumstances. The Government inherited a rising wage-cost inflation, and from the outset it has been one of our main purposes to seek to contain it. It was during the first phase of this battle, while we were seeking to use voluntary means, that voluntary price restraint began. Later, when faced with the dangerous resurgence of the wage-price spiral last autumn, we had no choice but to take statutory powers—powers which inevitably covered the nationalised industries as well as the private sector.
For two of these industries, the railways and the coal industry, the consequences of

price restraint were added to an already chronic deficit position. We dealt with the coal industry in a Bill last Session, and in due course my right hon. and learned Friend the Secretary of State for the Environment will be bringing forward a Bill to deal with the railways. Accordingly, Clauses 1 and 2 and the First Schedule to the Bill do not touch upon either the coal industry or the railways. They deal only with the industries listed in the First Schedule to the Bill; namely, the electricity boards of England, Wales and Scotland, the Gas Corporation and the Post Office. These are all industries which were profitable before restraint and can be profitable when it ends.

Mr. J. Bruce-Gardyne: When?

Mr. Jenkin: I shall come to that point in a moment. They are industries for which in principle a commercial régime is appropriate, and the legislation governing them provides for that régime.

Mr. Arthur Palmer: The right hon. Gentleman will appreciate that the electricity supply industry has had to wait for the advent of a Conservative Government to move into the red for the first time since nationalisation.

Mr. Jenkin: The hon. Gentleman makes a point of which we are all aware. I have tried to be frank with the House. We have never sought to conceal from the House that there are disadvantages in the policy we are following. I shall hope to argue that in the circumstances in which we find ourselves those disadvantages have been outweighed by gains. Price restraint has interfered with that commercial régime, and the principle underlying the Bill is that in such circumstances the industries must be compensated.
Before I discuss the details of the compensation, the House will want to know what benefit the Government believe has been secured by subsidising the consumer in this way. As a rough rule of thumb, the cost of knocking 1 per cent. off the retail price index must be about 1 per cent. of consumer expenditure, or roughly £450 million a year. Because the full benefit of price restraint by the industries is being passed on to the consumer, the holding down of nationalised industry tariffs is not a bad buy.
Indeed, the case goes further. Fuel tariffs loom larger in household budgets of the poor than of the population as a whole. In 1972, for example, fuel accounted for 6 per cent. of the expenditure of households with average income, but nearly double that—over 11 per cent.—in households with incomes below £15 a week. That is no doubt why the Trades Union Congress has included fuels in the list of key prices on which it considers effective Government action to be
a cornerstone of any counter-inflationary policy".
At a time when one is seeking voluntary restraint on pay in order to deescalate the level of pay settlements or when one has been forced to introduce statutory pay controls, the case for thus acting directly on the retail price index by restricting price increases in the nationalised sector becomes compelling. One has only to imagine what the reaction of the public and of industry would have been if, while pay and private sector prices were being held back and profit margins restricted, the nationalised industries had been allowed cheerfully to put up prices to meet their financial targets. I suggest that, given the general requirements of a counter-inflation policy, that would not have been a tenable course of action.

Mr. John Biffen: In view of that observation, does the Chief Secretary welcome or regret the fact that such commercial protection is now vested in the British Steel Corporation?

Mr. Jenkin: It is a matter of simple fact. The right hon. Member for Bristol, South-East (Mr. Benn) will remember that we had some very full debates during the proceedings on the counter-inflation legislation as to the fact that the steel industry was outside the terms of control because it was subject to the régime of the European Coal and Steel Community. It is a fact that those prices are outside the control. That is why this part of the Bill does not extend to those industries.

Mr. Anthony Wedgwood Benn: But the Chief Secretary should not seek to get away with it in that way by saying that an act of policy which restricts the rise in public sector

prices and an act of policy, on the other hand, which releases the public sector—namely, the steel industry—from price control are just facts to be noted. They are both contradictory pieces of policy from the same Government. The hon. Member for Oswestry (Mr. Biffen) was asking the Chief Secretary whether if that argument were logical on the one hand it also made sense to release the steel industry entirely under another piece of legislation.

Mr. Jenkin: The right hon. Gentleman has posed the question in an entirely different way. The fact is that as a result of the obligations we have accepted under the treaty of accession it would not have been open to the Government to apply this policy to the steel industry.

Mr. Bruce-Gardyne: My right hon. Friend has repeated his statement that, because of our obligation under the EEC, we cannot apply these policies to the steel industry. If that is so, what on earth has my right hon. Friend the Secretary of State for Trade and Industry been discussing week in and week out with Dr. Finniston? Is he asking the House to believe that Dr. Finniston thinks that he is not subject to Government control in respect of his prices?

Mr. Jenkin: My hon. Friend is making a different point. There is a question of what rate of price increase is consistent with, and what rate of price increase would go beyond, the obligations necessary to comply with the treaty. On that matter my right hon. Friend the Secretary of State for Trade and Industry will have discussions with the Chairman of the British Steel Corporation.

Mr. Biffen: My right hon. Friend has established a fact that was well known to hon. Members on both sides of the House. I was asking him whether this was something that he welcomed or regretted.

Mr. Jenkin: Whether one welcomes or regrets anything, there are a great many facts of one sort or another that the Government accept. It is fair to say, in answer to my hon. Friend the Member for Oswestry (Mr. Biffen), that clearly the impact of steel price rises on the retail price index is very much more indirect than is the impact of electricity,


gas and telephone charges. The whole matter is subject to the allowable cost régime of the steel-using industries.

Mr. Benn: Do the emergency powers give the Government power to override their obligations under the European Coal and Steel Community?

Mr. Jenkin: That does not arise on the Bill, but I shall see that the right hon. Gentleman receives an answer.
The point I was making, which I believe is a valid point, is that, given the constraints on pay and private sector prices and also private sector profitability, it would have been unthinkable had we allowed the public sector to put up prices as though nothing had happened. I believe that political, psychological and practical considerations all demanded price restraint in the public sector as well as in the private sector. But we now have to face the consequences, and the Bill is about the consequences.
It has not been possible at any stage to forecast how long price restraint would have to last. Furthermore, it has been difficult to forecast how the balance between counter inflation and running into deficit would be struck at each stage. I make that point because it is important. Although most of the financial provision in the Bill covers past periods and the current financial year 1973–74, we are also making provision for next year, 1974–75. This is because on present forecasts we anticipate that the effects of price restraint on the industries with which we are dealing will still require compensation for next year. However, I must make it clear that conditions are changing rapidly, especially in our energy situation, and the Government must reserve their position so as to deal with the changing situation in such a way as best to secure our overall objectives.

Mr. Tam Dalyell: rose—

Mr. Jenkin: No. I am sorry, but I have given way several times already. [Interruption.] I hope we have not got so deep into the mire of political battle that if a Minister tries to be frank with the House it becomes a matter for jeering by Opposition Members. I must tell the hon. Member for Newcastle-under-

Lyme (Mr. Golding) that conduct of that sort brings this House and politics into disrepute.
I turn to the quantum for compensation. For the years that are closed and for the current year compensation under the Bill is related to the actual deficits incurred. It is arguable—and some of the industries have argued—that this does not compensate fully for the revenue forgone. To make such a calculation, however, involves making assumptions or even speculations about what might or might not have happened but for price restraint. The Government have felt, and I think that the industries now accept, that there really is no alternative but to quantify the compensation by reference to actual deficits.
Thus, under Clause 1 the Bill empowers the relevant Minister to pay compensation for the financial years 1971–73 to the total of the amounts specified in the First Schedule, amounting to a total of nearly £146 million. Under Clause 2 compensation for 1973–74 is not to exceed the deficit on revenue account, and obviously it will be some months before that can be quantified.
The financial year 1974–75 may be treated differently under the Bill. As I said earlier, one of the most serious disadvantages of this policy is the weakening of financial discipline both internally within the industries themselves and externally by sponsoring departments and the Treasury. We are very anxious to begin to reassert some measure of financial discipline as a first step towards restoring full viability and the commercial régime which I believe the whole House wishes to see.
For 1974–75, therefore, the Bill empowers the Minister to determine the amount of compensation by reference not only to the actual deficits which may be incurred but to the estimates of such deficits made before or during 1974–75. That means that at the very minimum the industries and the departments will be obliged to compare the outturn with the earlier estimates and to form some view as to how far the industries' objectives have been secured notwithstanding the continuing restraint on prices.

Mr. Dalyell: When the right hon. Gentleman refers to financial discipline,


how does this affect the investment programmes of organisations such as the South of Scotland Electricity Board, which may want to pay out more in the short term by way of investment in, say, Magnox or SGHW reactors?

Mr. Jenkin: I shall not deal with that specific technical point, but I shall be coming shortly to deal with other forms of control. The provision in the Bill relating to 1974–75 means that at the minimum the departments and the industries will have to compare the outturn with the estimates.
Again I want to make it clear and to be frank with the House. I do not think that we should claim too much for this approach. Obviously it falls far short of the kind of medium-term financial targets which Governments of both parties have felt it right in normal circumstances to seek to establish for the nationalised industries. But it is a start.
Exactly how Clause 2(5) will be carried into effect and how far it will be possible to build in some form of incentive to the industries to contain their costs and to maximise productivity is a matter which we are still exploring with them and on which we shall be anxious to hear the views of right hon. and hon. Members.
The Bill is drafted sufficiently widely to enable us to adopt any one of a number of different approaches whether of a more or a less sophisticated kind to achieve the tightening of financial discipline which we want.
As regards the specific amounts to be paid by way of compensation to offset the deficits of these industries this year and next, the price decisions affecting the outcome in the current year have, for practical purposes, been taken. Nevertheless, with a combined turnover of some £5,000 million a year for these industries and with many uncertainties in the situation—of which the weather is the most uncertain of all—we cannot be sure of the final outturn. Our present estimate is that the deficits for these industries for 1973–74 will be in the range of £175 million to £200 million, but it could he less and it might even be more.
When we look ahead to 1974–75, quite apart from these uncertainties there is the additional point that we are not in a

position to anticipate the timing or size of the price increases which will take place. For the time being, therefore, we can do no better than allow for the possibility that these deficits in 1974–75 will be of the same broad order of magnitude as in the current year. As the House will recognise, however, this must be subject to a significant margin of error. Therefore, we have included in Clause 2(6) a limit of £400 million to cover the two years, with power to increase that by a further £100 million by order subject to the affirmative resolution procedure.
As the Minister responsible for public expenditure, I should be happy if circumstances made it unnecessary to take full advantage of this provision. But we must bear in mind the overriding purpose of the exercise; namely, to make a direct and significant impact on costs and prices.
Let me add two more general points. The boards have made abundantly clear to the Government the demoralising effect which continuing deficit finance on this scale is having on their organisations, and Ministers in their turn have made it clear to the boards that they share these anxieties. This is one of the main reasons why we are anxious if possible to get away from straight open-ended deficit financing for 1974–75 and to get back to a normal financial régime as soon as possible.
That is not the only way to ensure financial discipline. Here I come to the point made by the hon. Member for West Lothian (Mr. Dalyell). Although lack of freedom to fix prices makes it more difficult for the industries to be managed properly or to plan ahead, it is far from making it impossible. Other disciplines exist. For instance, we continue to encourage the industries to develop systems of corporate planning. Such a system should cover the long term, say, 10 years or more, the medium term corresponding approximately to the five-year public expenditure period, and the provision of fully worked out operating budgets for the year immediately ahead. These corporate plans must be discussed with departments, which in turn are developing systems for monitoring results.

Mr. Dalyell: What worries many of us is that there should be a bias against the short term built into projects, such as nuclear power stations, which may be


technically very desirable. I hope that we shall have some undertaking that that will not be the case.

Mr. Jenkin: I deny the existence of any such bias. The investment programmes of the nationalised industries are looked at on their merits and, I hope, with increasing care and sophistication. In addition, the return and the national need for increased capacity are examined most carefully.
The pattern of corporate planning and the departmental monitoring will always be important in dealing with industries which for the most part enjoy monopoly positions and could in the absence of price restraint meet almost any financial target by simply shoving up prices. This was a weakness of the system of financial targets as they existed hitherto. Merely to rely on target rates of return on capital does not necessarily of itself produce the most efficient use of resources or the containment of costs. The development of corporate planning, which can proceed to some extent independently of the setting of longer-term financial targets, will, it is hoped, add a new dimension to the constraints and incentives upon these industries to make the best use of their assets.
As I have said, it remains our settled intention to restore the industries to normal profitability, but how fast we can do that must depend on our success in restraining the general level of prices. I again stress that we want to return as soon as possible to somewhere near the previous system of long-term financial objectives, supplemented by corporate planning of the kind the industries are currently introducing. Only in that way shall we make sure that demand for the services is related to costs and that the industries generate sufficient surpluses to provide for a substantial part of their investment needs. In the meantime, we must ask the House for the powers to pay compensation as provided in the Bill.

Mr. J. Enoch Powell: Before my right hon. Friend moves from one part of the Bill to another, can he clarify a point? He has stated, as I understand him, that the total cost of the 1 per cent. gain on the cost of living as a result of the restraint of prices in the industries concerned is £450 million a year. On the other hand, the

amount which will be paid in compensation under the Bill will, I understand, be approximately one third of that amount. Where does the residue of the burden fall to be borne?

Mr. Jenkin: I am not sure that I fully understand my right hon. Friend's point. The Bill covers a series of years, while the figure of £146 million for 1971–73 covers a period in which the value of restraint was significantly less than the 1 per cent. to which my right hon. Friend has referred. For the current year, and next year, the figures should be about £175 million to £200 million. On the figures I have given, that would be roughly half a per cent. of the retail price index.
We are compensating for deficits, not for loss of revenue. I am aware that this has been raised by the electricity industry as an important point. It would be impossible to try to work out, for instance, figures which would be satisfactory to the Public Accounts Committee and to the Comptroller and Auditor General on the sort of speculations and estimates which would be necessary to satisfy a revenue-forgone basis. We are supported in this view by The Economist. On 17th November it stated:
This is an impossible sum to cross-check since it makes no allowance for the benefits gained from restraint on others and the Government has rightly refused to enter into any argument.
This must be right. We can compensate only for deficits.
I turn now to the remainder of the Bill in which we seek to extend and rationalise the borrowing powers of the industries and bodies mentioned in Schedules 2 and 3. I emphasise that there is nothing new in this part of the Bill. Each of the powers which we are seeking has precedents in other legislation.
The nationalised industries first obtained powers to borrow foreign currency under the previous Government. The earliest example was the Air Corporations Act 1967. Our predecessors believed, and we agree, that there are certain circumstances in which it is entirely appropriate that public corporations should borrow from overseas, and there seems no very clear reason for some industries' powers to be much more heavily circumscribed than others. If it is right for one industry to borrow on the Eurodollar market, or


to borrow sterling overseas, it must be right for them all to do so. So what the Bill does is, first, to give to all those industries still lacking them powers to borrow foreign currency. This includes, for instance, British Rail and the other transport industries. Secondly, it brings the existing powers of the electricity authorities and of the Covent Garden Market Authority into line with the rest. Previously they could borrow foreign currency only by the issue of stock or other securities. Under Schedule 2 the restriction is removed.
Thirdly, the Bill extends the borrowing powers of the industries to enable them to borrow sterling from the European Coal and Steel Community and the European Investment Bank. The House will remember that this power was granted to the National Coal Board in the Coal Industry Act passed in the last Session. It may be asked why sterling borrowing should be restricted to the EIB and the Community. The answer is that for many years now it has been the policy of successive Governments to centralise the long-term sterling borrowing of public bodies through the National Loans Fund. In this way, maximum flexibility is preserved in the management of the gilt-edged market. The policy was endorsed by the Radcliffe Committee in 1959 and by the Select Committee on Nationalised Industries in 1968.
All the reasons for pursuing this policy continue to apply to sterling borrowing on the domestic market, but they do not apply to sterling borrowing from the EIB and the Community. Such borrowing could not have an adverse effect on the management of gilt-edged. The EIB customarily lends a basket of currencies, including the borrower's own, and it, therefore, seems to the Government entirely right that United Kingdom public sector borrowers should be in a position to take full advantage of these facilities.
There are, however, three general points which I wish to make. First, the new powers which the Bill seeks do not in any way increase the amount which individual bodies may borrow, but only extend the range of sources available to these borrowers. There will not necessarily be any consequential rise in foreign currency borrowing by nationalised industries;

the amount borrowed depends partly on the scale and terms of the funds available and is, in any event, subject to specific approval in each case.
I am sure, however, that the House will agree that it is proper that all public borrowers should be able to use equally the opportunities which exist. In particular, all should be able to enjoy the benefits of membership of the Communities. The Coal and Steel Community and the EIB lend on what are often attractive rates. For instance, the British Steel Corporation's £14·7 million loan from the EIB for the Teesside complex was at 8½ per cent., and it would have been an even more attractive loan if the BSC had been able to borrow part of it in sterling.
A second point which I need hardly mention is that the new powers do not enable the industries to increase their capital spending. This is determined in the course of the review of the industries' corporate planning and investment programmes and is settled in the normal annual review of public expenditure.
Thirdly—and I mention this because of a remark made by the right hon. Member for Leeds, East (Mr. Healey) on Monday which seems to indicate a misunderstanding—the overseas borrowing does not add to the Government's borrowing requirement. The right hon. Gentleman seems to be under a misapprehension. He said:
At the same time as the Government are planning on a substantial fall in the growth rate they have an enormous borrowing requirement of £4,000 million, swollen by public authority borrowing abroad of £1,000 million since March".—[OFFICIAL REPORT; 19th November 1973, Vol. 864, c. 1070.]
That is to misunderstand the position. The public sector borrowing requirement may be met from a variety of sources, including overseas borrowing. Such borrowing does not swell the total; it is simply part of it. I am glad to put that on the record.
I hope the House, therefore, will accept that these wider powers are both logical and sensible and will increase the flexibility of the industries to operate overseas if it is appropriate for them to do so. I know there has been some criticism of the Government's policy in allowing the industries to borrow overseas. This is essentially a matter of


general economic strategy. In a period when the economy is expanding rapidly, and, in particular, when the terms of trade have been moving substantially against us, deficits on current account must be expected.
Financing the deficits requires the use of foreign currency reserves, and the simple and straight-forward point is that foreign currency borrowed increases our reserves. The current account deficit in the first 10 months of the year has been almost fully covered from this source. But the key point is that these are commercial loans made to the public sector on acceptable terms and justifiable on commercial grounds, and my hon. Friend the Minister of State will deal with that later. They therefore represent sound borrowing which fully supports the Government's overall strategy. It is for this reason that exchange cover is given in a way which has the advantage of enabling the borrower to pay lower interest rates than would have been necessary on domestic borrowings.
Furthermore, the timing of the repayment obligations means that the loans will run for a period stretching beyond the time when our payments position will have strengthened. There is no reason why the repayment obligation should cause any difficulty. For example, the last repayment on the loans at present outstanding will not take place until 1988.
I did not expect—and I have not been disappointed—that the Bill would be greeted with wild whoops of unconfined joy. I am afraid it is not that sort of Bill. But it is a necessary Bill which gives the Government powers which we must have. I hope the House will feel able to give it a Second Reading tonight.

4.31 p.m.

Mr. Anthony Wedgwood Benn: I should like to join the Chief Secretary in his reference to the passing of Gerald Nabarro, who will be missed on all sides of the House as a man who contributed vigorously to our debates and who, beneath that bristling exterior, had a very kind heart.
The Chief Secretary's speech combined presentation in a low key with more than the usual measure of complacency about the Bill he was presenting to the House. It is a major Bill and it is part of a long

line of Government measures which are taking this country away from market forces towards a tightly-controlled, centrally-directed economy in which more and more power is exercised by Ministers and fewer and fewer decisions are made by the free play of demand and supply.
The Bill cannot be seen in isolation from the trend in Government measures, among which I would certainly include the Industry Act, the Counter-Inflation Act, and the most surprising Bill of all, the Fuel and Electricity Control Bill, which was published yesterday and which is not temporary but a permanent measure all giving Ministers not only powers over the economy but powers to extend huge subsidies to private industry. That is where most of these subsidies go in a system of deficiency payments to certain public corporations providing, in this case, gas, electricity and postal and telecommunications services.
It also revealed—and the Minister might have said this but did not—the dependence of the Government on the large public sector corporations for three purposes: first, to enforce their prices policy; secondly, to subsidise the private sector through the agency of the nationalised industries; and thirdly, to use borrowing by the nationalised industries to cover a widening balance of payments deficit.
The sums involved in the Bill are very large. They are £145 million now, and up to £400 million to £500 million later. That is £645 million in all and, taken with the transport grants and the arrangements for coal and the British Steel Corporation, total something about £1,194 million. That amount has gone into the public sector as a result of Government policy. It is a very large sum. It certainly represents a major change in Government policy and Government thinking, and if the Chief Secretary had wanted Parliament to be held in high repute he might perhaps have drawn attention to that fact.
All this has to be contrasted with the first "keynote" speech made by the first Secretary of State for Trade and Industry when he took over—a speech in which he talked about the nationalised industries and said that the watchword was "disengagement". If it will not embarrass Conservative Members too


much, I shall read a little of a speech which drew universal acclaim from the Blackpool Conference in October 1970. He said:
Finally, in the sense that to the extent possible the Government must withdraw from its perpetual scrutiny and commentary upon the managements concerned, a process which undermines authority, constitutes a permanent alibi for inadequate performance and represents a serious inhibition to recruitment and the development of efficient management from within.
There are few echoes of that post-electoral euphoria from hon. Gentlemen opposite, but let me go on because this part refers to the Minister:
Such a policy of disengagement",
said the first Secretary of State, now Chancellor of the Duchy of Lancaster,
is going to need steady nerves and sustained determination. Parliament, the party and the public as a whole are going to chafe against the thought that they cannot continually have rights of scrutiny and question. But I am convinced that they will be better served by introducing the sanctions of private enterprise into those concerns and within those disciplines to let management manage.
Frankly, if the Chief Secretary wants to be taken seriously he had better explain to Parliament, where these problems should be illuminated, why a major change of policy should be announced by him without any recognition that it was a big change of policy.

Mr. Patrick Jenkin: I earned some jeers—although that is perhaps too strong a word—because I sought to put those points as frankly as I could before the House. I should not wish anybody to be under any misapprehension. The Government fully recognise all the disadvantages of the policy that we have followed. However, the right hon. Gentleman has not said whether he agrees with what we have done.

Mr. Benn: I have yet to make my speech. All we are asking is that, when Ministers make a U-turn, they put out a few hand signals so that we may know. I am coming to the argument.
I want to reassure hon. Gentlemen opposite that by doing this, the Government, have not adopted a Socialist policy. I acquit the right hon. Gentleman of that immediately. They have not become Socialists and they have not adopted Socialist objectives. All they have done

is to abandon the intellectual fortress that they occupied which was based on a belief in the market economy. They have come out of that territory, but they have not occupied ours, although many of the methods that may have to be used, which we have long advocated, they now accept may be necessary. In effect, they have killed off their old arguments without adopting our perspectives.
This opens up the question whether the administration of a managed economy, in place of the stale old argument whether an economy ought to be managed, is a discussion worth having. It is to that point that I shall address myself on Second Reading of the Bill.

Mr. Eric S. Heffer: My right hon. Friend referred to an intellectual fortress. It may be a fortress, but it is hardly intellectual.

Mr. Benn: I think that those in it may have thought it had some intellectual strength because they argued from an intellectual viewpoint. Now the fortress has been evacuated, and it looks like those pill boxes of the French Foreign Legion left in North Africa which remind people of nothing but the simplicity of the architecture that led to their design.
The argument is whether the powers that the Minister now claims are necessary are being used wisely, sensibly and fairly in the interests of the community and of the work people in the industries concerned. These are very important questions to which the right hon. Gentleman gave very little attention.
But let us accept gratefully that the Government have been converted, albeit rather late, to the value of the public sector and see where that leads us. Implicit in what the Minister said is that a major chunk of our economy must be publicly owned to fulfil the policy requirements that he now maintains are essential. Secondly, he recognises that one of the arguments for public ownership must now depend on the need for a large public sector to reinforce Government objectives. That is what the right hon. Gentleman said today.

Mr. Patrick Jenkin: With respect, in a perfectly legitimate parliamentary tactic, about which I do not complain, the right hon. Gentleman is taking my argument much further than I expressed it. All I


said was that when exercising restraint on private sector prices and profits it is untenable to imagine that we could get away with that without doing the same in the public sector. I did not say anything such as that which the right hon. Gentleman is implying.

Mr. Benn: The right hon. Gentleman may think that that is an argument that he carries, but the argument may carry him. When he adopts an argument he will find that his own argument carries him in a certain direction. I am glad that he intervened. If he will read what the Labour Party outlined in its programme last year he will find his own argument set out. I will read it to him:
In cases where key prices have to be held down to a level which does not provide the level of profit adequate for reinvestment, we shall consider the possibility of Government investment to meet a firm's capital needs in return for a public shareholding in that firm.
The right hon. Gentleman endorsed the Labour Party's programme for 1972 about intervening on prices.

Mr. Patrick Jenkin: The right hon. Gentleman is doing it again, but this time in an illegitimate way. It is perfectly clear that the passage that he read from that rather turgid document which his party published last year related to private industry, not to the public sector. He must not twist the argument.

Mr. Benn: The right hon. Gentleman had better learn to take it. He is adopting a policy of intervening in prices and putting in public money in return. I will come to our attitude towards the public sector, but this is exactly the argument that we adopted for the private sector. It is part of the argument that I shall be developing for a substantial expansion of public ownership, with which the right hon. Gentleman has helped me because he has found a useful way of utilising the public sector.
I invite the right hon. Gentleman to look at the 1973 programme of the Labour Party, including the reference to a national enterprise board—[Interruption.] The hon. Gentleman must listen. He will then see how many good marks he gets on the basis of criteria.
What are the arguments for a national enterprise board? First, job creation in areas of high unemployment. The electricity supply industry provides that.

Secondly, investment promotion. The Bill sustains investment. Thirdly, technological development. The Bill sustains technological development in the telecommunications, postal and electricity supply industries. Fourthly, growth of exports. The Bill subsidises exports. Fifthly, promotion of Government price policies. Sixthly, tackling the spread of multinational companies. Perhaps that does not apply. Finally, there is the spread of industrial democracy, and import substitution.
Of the eight reasons that we give for extending public ownership the right hon. Gentleman has adopted six as part of his argument.

Mr. Patrick Jenkin: Price policy.

Mr. Benn: Price policy, investment promotion, technological development. What is he financing but the telecommunications service? He is financing it through the Bill. He must not be too modest. He scores on six out of the eight arguments for a national enterprise board.
I mentioned all this because I wanted to celebrate the death of an old theoretical argument. I am doing this in the spirit of good will and friendship by abandoning party disputes in the interest of the credibility of Parliament. The right hon. Gentleman has mounted an argument, of which he may think he is in charge, but that argument is going along railway lines to a destination that he had better recognise if he is in favour of long-term corporate planning.

Mr. Bruce-Gardyne: The right hon. Gentleman is being a little irresponsible. I understood that it was the view of the Opposition that the Bill should be passed into law. However, he is so conducting his argument as to encourage hon. Members on this side of the House to vote against it.

Mr. Benn: I am trying to help everybody. I am trying to help the Minister by congratulating him on the extent to which he has been influenced by our arguments. I am trying to reassure hon. Gentlemen opposite by saying that this is not Socialism but the abandonment of the belief in the market economy. This is the best encouragement I can give to hon. Gentlemen opposite.
Having finished my friendly references, I want to turn to the five issues raised in the Bill. Given the fact that there is no dispute about the need for a large public sector and the rôle that the Government must play in dealing with it, let us look at the issues raised.
The Bill does five things. The first effect is bound to be on the rate of domestic inflation. Injecting sums of money of this order into the economy in this way at this time is bound to have a considerable bearing on the rate of inflation. I will not argue with the right hon. Member for Wolverhampton, South-West (Mr. Powell) about the extent to which this has reduced the cost of living in one sense. In another sense, of course, those who follow the money supply arguments and the right hon. Gentleman's arguments will see that it could at best be seen to be a double-edged weapon—on the one hand promoting inflation and on the other hand reducing it. But since we have so many economic debates and so few industrial debates, I will leave my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) to deal with that.
The second effect of the Bill is on the state of our overseas indebtedness, of borrowing, not at the most favourable rates. The Chief Secretary knows that there have been serious discussions about whether this overseas borrowing has been conducted at the right rate of interest and whether there were not other ways of doing it. But that is a technical question. What I am saying is that huge sums are being borrowed from abroad to finance the public corporations.
I hope that those hon. Members who made great political play of the foreign debts incurred by the last Government to the IMF and others as a result of the balance of payments deficit that we inherited will, when they claim to have paid off all these debts, draw public attention honestly to the fact that they are now busy incurring and authorising new debts by means of public sector borrowing—over $2,000 million, if one includes local authorities, since last March, now to be extended. This is, frankly, a gamble on the growth policy and the likely development of the balance of payments, which, even if only on energy grounds, may not come off. The

Minister might have been a little more modest in his claim about that.
I should like to make one detailed point about the electricity industry and the foreign borrowing. If the electricity industry borrows from the European market to buy American reactors for the British domestic electricity industry, that will be outrageous. I draw the Minister's attention to the interconnection in borrowing from Europe to buy American in order to replace our own domestic reactors, whether they be AGRs, Magnoxes, SGHWs or the subsequent development of the high-temperature or fast-breeder reactor.
The third effect of the Bill is on the central question of subsidies. As I said earlier, these are not subsidies to the nationalised industries. If the normal commercial criteria used by private industry had been open to these corporations, there would have been no problem. Electricity, gas, postal and telecommunications tariffs now are lower in this country than they would otherwise be, and are very competitive, only because the Government would not allow tariff increases. That is why the problem has arisen. These are more like deficiency payments than subsidies in the old sense.
But two questions arise. First, if subsidies of this order are to be approved, what remains of the general argument against subsidies for other products? Why subsidise coal, gas, electricity, postal and telecommunications services and refuse to subsidise key foods which enter directly into the household budgets of families in which the breadwinners are now forced to put in wage claims in order to survive? These products that I have mentioned are even less selective than food subsidies.
It has often been argued that the case against food subsidies is that they will also go to the better-off. But I have checked. Taking energy as a whole, only 25 per cent. of all the energy consumed in the United Kingdom is used by domestic consumers—about 14 million therms against 58 million therms; twice as much goes to industry and transport, and 6 per cent. to iron and steel. If our exports are so competitive because of devaluation, why subsidise them through subsidised energy to British manufacturers?
Or take the Post Office. I do not remember the up-to-date figures, but less than 50


per cent. of people—I believe that it is 43 per cent.—have telephones. Why subsidise the man with a telephone and not key foods for people on or near the poverty line? It is crazy economics to come forward on this basis.
Less than half, and probably only a third, of these services are used by the consumer, and even the consumer benefit is non-selective as between rich and poor. Again, it is of course a regressive subsidy, because if one subsidises the telephone user, or the people who distribute pools coupons because postal charges are lower, one is not reaching the people whom one wants to help.
The Minister asked why we were not opposing the Bill. The answer is, because these industries have been put in the red as a result of Government policy, and the Government must pay to help them. That is why we are not opposing the Bill—and not, as the Leader of the Liberal Party thought, because there is no disagreement. The disagreement will emerge in the debate.
The fourth effect of the Bill is on the nationalised industries themselves, at two levels—management and workers. These are both crucial for a sector of our economy producing 10 per cent. of our gross national product. Some of the most valuable work in public policy has been done in this area of financing the nationalised industries over the years. Before the war, the early ideas of public ownership were based on bringing them into Government Departments. Some of the early advocates of public ownership thought that there would be a Coalmaster-General, like the Postmaster-General. We have come a long way since then. We have had the Morrison financial model, the breaking even of one year with another. We have had the Select Committee on Nationalised Industries which has, over the years, done very good work in this extremely difficult area of public policy and which has painfully constructed principles upon which the nationalised industries should be run.
The last Government's 1967 White Paper, Cmnd. 3437, raised and established four very important principles which I want now to draw to the attention of the House. The first principle

governed the appraisal of new investment:
… the Government will expect projects which are submitted to it for approval to be expressed in present values by the use of a test rate of discount",
which
… must be sufficient to ensure that resources are efficiently used".
The second principle was:
… the consumer should pay the true costs of providing the goods and services he consumes, in every case where these can be sensibly identified.
The third principle was:
Clear financial objectives will continue to be necessary so that the industries know what is expected of them by the Government. Thus they serve both as an incentive to management and as one of the standards by which success or failure over a period of years may be judged. The alternative would be an indefensible lack of control over the return achieved on a very substantial public investment.
The fourth principle, the one which the Minister called in aid, took account of the fact that nationalised industries had a special position as arms of Government:
Where there are significant social or wider economic costs and benefits which ought to be taken into account in their investment and pricing these will be reflected in the Government's policy for the industry: and if this means that the industry has to act against its own commercial interests, the Government will accept responsiblity.
That is going well beyond the idea of writing off deficits to the idea of actually assuming proper responsibility. This includes laying down what the targets should be.
I want to turn now to the effect of throwing this away, first of all on the management of the nationalised industries and then upon the staff. By any objective criteria, the nationalised industries are as efficient as, if not more efficient than, most private corporations; by any normal criteria of pricing, they would be well able, without the abuse of monopoly power, to meet these targets. The psychological effect of preventing this is, of course, now to be seen in its industrial relations context.
There is no doubt that postmen, gas and electricity workers and others who have been driven by the Government to work in industries which have been forced into the red, properly resent that this has been done to them. They know this. If the Government pretend, as they


often do when they are on the hustings rather than in the calm atmosphere of the House of Commons, that the nationalised industries are always losing money—this is what they say outside the House, while they argue the case on a high intellectual level inside—and if they then imply that the workers with wage demands are always asking for subsidies in order that they may be paid a proper rate, they create much of the industrial unrest that we have seen in the public sector over the last few years.
The entire responsibility for that rests upon the Government. It may suit them politically to keep those industries in the red and to keep public sector employees at the bottom of the wage queue. But it is not a fair or honourable thing to do. If there are circumstances which require some control of prices, there is no reason why public sector employees should even be on a comparability basis in many areas of high growth, such as telecommunications and electricity, and in other areas, too. Those working in the nationalised industries should still, despite that, be allowed to lead, as they would otherwise do.
If the Government want to use the public sector to help with price restraint, as we say—that is why I quoted from our programme—it must be reimbursed in full at once, and properly, out of tax revenue. That is the only way to meet national objectives without damaging the national interest in successful nationalised industries.
The fifth effect of the Bill is to sustain investment. Here at least we can see a contrast between the investment records of the public and the private sectors. The Government must take full credit because, despite their interference with pricing, at least public investment in these industries has been sustained. Let me read very quickly a few figures of public sector investment, which will demonstrate what I mean. I take, for example, the electricity council and boards of England and Wales. The 1970–71 investment was £398 million. That will be rising to £485 million in 1973–74. Taking the Post Office, which is another case, from £456 million the figure will rise in 1973–74 to £737 million.
Here is another case for public ownership. It is that, in spite of all the tax

cuts and 1368the policies which the Government have pursued in the private sector since they came to power, they have absolutely failed so far to secure any increase in investment in private industry comparable to the steady increase in public investment. Public investment has been able to survive Government policies. Moreover, if one regards this money as in part a financing of investment in place of self-financing, public sector money has been used to keep public sector investment high.
We support the Bill because the Government must accept responsibility for what they have done.

Mr. Patrick Jenkin: The right hon. Gentleman has not answered my question. Does he think that it would have been tenable to have done anything else?

Mr. Benn: Good heavens. The right hon. Gentleman might do me the courtesy of listening to my speech, or, perhaps, of reading it later. If he has not understood my argument, I will state it again. It is this. Given what the Government have done to the nationalised industries, we shall not go into the Lobby to vote against Second Reading. But the argument does not end there. This brings me back to the exchanges which I had with the right hon. Gentleman earlier. This Bill opens up in Parliament the whole public ownership issue in a way which is directly relevant to the needs of the community. Three and a half years after the Government came to power to end controls, to disengage and to sell off some nationalised concerns, the wheel has come full circle. The issue is alive and important and is seen to be a central part of Government thinking.
There are many reasons for public ownership—workers' control, distribution of wealth and power, the banishment of the ugly face of capitalism, and the ending of abuses of power. But above all those reasons, a strong and growing public sector, expanding progressively into manufacturing industry—whether category 1 firms, the commanding heights, or the 25 companies—offers to any Government the powers that they need, whatever their differing social objectives, to safeguard the national interest. We shall need public ownership in Britain on a far wider scale.
I want to give one example. The energy crisis will precipitate a need for a massive new investment programme in all indigenous fuels, in fuel-saving equipment and in public transport, as we move away from, perhaps, the unrestricted use of the private car. Only a public sector financed to get the investment needed can offer to this country an answer to its energy crisis.
The Government have handled the public sector badly. But at least in this Bill they are taking the first faltering steps along the road which will lead to an extension of public enterprise in its most creative form for this country. At least the Government are abandoning in practice their old-fashioned objections to it, and now they have moved into and are working in our territory, we shall be able to move a little further forward.
We shall not vote against Second Reading. We believe that ultimately the Bill will be remembered as being much more than just one fresh change in Government thinking—as being, indeed, the beginning of a serious debate about whether this country can tackle its long-term industrial problems without a substantial expansion in public ownership and a sensible relationship between the public sector and a community through the agency of a Government who wish both to succeed.

5.1 p.m.

Miss J. M. Quennell: There were times during the speech of the right hon. Member for Bristol, South-East (Mr. Benn) when he and my right hon. and fiscal Friend were, so to speak, across the table at one another. I shall, therefore, ask the right hon. Gentleman to forgive me for not trying to follow his speech exactly.
My right hon. Friend the Chief Secretary made a good fist of moving the Second Reading of the Bill. I suspect that, had he had a choice in the matter, he would have preferred not to move the Second Reading. Probably my hon. Friend the Member for Portsmouth. Langstone (Mr. Ian Lloyd)—it is still called Portsmouth, Langstone, though I understand that it is called Havant and Waterlooville elsewhere—and myself and the PPS were the only Members present

who did not seek to intervene during his speech.
Let us be clear about the Bill. What we are doing under Clause 1 and Schedule 1, is to write off the losses of certain statutory bodies for the last three financial years. Under Schedule 2 we are empowering responsible Ministers to continue doing the same thing, provided that the sum does not exceed £500 million altogether, bearing in mind that in Clause 1 we are considering £145 million. In the rest of the Bill we are almost providing a blank cheque for statutory bodies to borrow abroad.
The House has very little opportunity or ability to monitor the foreign borrowings of these statutory bodies. My right hon. Friend's introduction of this measure must be a reflection of his confidence in the buoyancy of the Inland Revenue's returns, because he is not likely to be able to raise £500 million in a hurry on the gilt-edged market at present. During his speech he used two phrases which I should like to take up. First, he referred to the industries as being "appropriate to commercial regimes." Secondly, he referred to the "morale of management."
In giving a Second Reading to this measure, what we are doing is making compensation for deficits incurred by these statutory bodies. This is not, perhaps, the best way in which we can sharpen the commercial or the trading instincts of these bodies or arouse their enthusiasm for meeting their customers' or consumers' needs. Indeed, there is already, certainly in my constituency, some evidence of friction where the State corporations and private enterprise meet—"inter-face" is the with-it phrase. To the user, the consumer, or the client, these bodies all too often present the image of some complacency. Sometimes they seem remote, sometimes they seem bureaucratic, and sometimes they seem downright odd.
There is no doubt that public confidence is affected by this impression. By the public I am talking about the taxpayer. I am talking about the man in the street, our constituent. The Bill is about his money, how it will be spent, and how its purchasing power will behave. So perhaps we should be talking about, or at any rate thinking about, the taxpayer's morale. By according the Bill a Second Reading we shall be allowing


compensation for deficits incurred in the past and adumbrated in the Bill.
One of the journals which I regularly read is the Economist. I would be in grave difficulties if I held any responsible office in this administration, because by some horrible mischance this week the Economist was not delivered to my flat, so I do not know what the Economist said. I seem to be the only hon. Member who does not know what the Economist said, and I do not know what I should be thinking. I know that my right hon. Friend quoted it again. However, I can speak only for myself.
I fear that in compensating for these deficits the commercial régimes to which my right hon. Friend referred—in other words, the development of the trading instinct, the acute awareness of customers' or consumers' needs, of the prospective markets that should be explored, and the need to satisfy and indeed please them—will be further postponed.
One of the bodies referred to in Schedule 2 is the National Bus Company. I mention this company in particular because in one parish in my constituency in the past three months four agents for the National Bus Company have given up their agencies. This has been brought to my attention by a constituent who depended on these agencies for making bookings. The reasons which were given to my constituent for the relinquishment of the agencies fell into three categories—first, that too much paper work was involved; secondly, that often when the agent tried to make a booking for a customer he had to be on the telephone for 15 minutes, and the owner or manager of a relatively modest shop cannot afford to give up 15 minutes like that; and, thirdly, that often when the customer had been booked in and was actually on the bus the bus did not stop where the customer had booked to and the wretched customer was carried on to somewhere else.
With every postponement of the need to develop commercial instinct, this instinct—this understanding of the need to meet customers' requirements—will further atrophy. I have sometimes thought that the only way to secure customer satisfaction is for these bodies to revert to the practice adopted by public companies, that is, of holding a meeting of

shareholders every year. After all, originally these bodies were public utility companies and every one of them had to have a shareholders' meeting.
As most of these boards are broken down into regions or areas, it would not be a bad idea if we instituted that practice anew and had annual meetings. I suspect that the attitude would grow, "In the old days our meetings may not have been attended by many shareholders, but they may turn up now. Therefore, we shall have to be on our toes." It would be a great satisfaction for a shareholder—that is, a taxpayer, one of those who is paying and who is a shareholder in these enterprises—to know that if he desired he could attend a meeting and tell the local general manager what he thought of his organisation and his management to his face. Few probably would, but it would be a great morale booster for our wretched taxpayers that they should be able to do so.
I regret that the Bill contains no such provision. I hope that one day—that is, if the Economist approves of the idea—we shall see it in another.

5.5 p.m.

Mr. John Pardoe: I wish to add my comments to those which have already been made concerning our late colleague, Sir Gerald Nabarro. To me he was essentially a kind man, and from the very first moment I met him in the House he displayed that kindness, a quality which I think all hon. Members understood and met in him.
The Bill is concerned first with subsidies. Therefore, I question the economic rationale and the priorities which we attach in allocating subsidies. It is concerned also with how we run our nationalised industries, how we make them accountable, how we measure the quality and the value of the service which they give, and what method of measurement we accept of their financial worth and their performance. Thirdly, the Bill is—this is of immense importance now and for the long-term future—concerned with energy, because most of the money that we are voting in the Bill is going to the electricity and gas industries.
The Bill refers to the future as well as to the past. I accept immediately what the right hon. Member for Bristol, South-East (Mr. Benn) said from the Opposition


Front Bench as to the difficulties of voting against providing for the effects of past Government policy. Providing the £146 million I hate and abhor, but there is not much we can do about it, and to vote against it would be shutting the stable door after the horse had left. That was precisely why I would have very much liked the support of the Opposition in tabling a reasoned Amendment which specifically referred to the future, because by comparison with what has happened in the past, the provisions of the Bill for the future are way over the horizon—£400 million, perhaps even £500 million, for losses incurred in two years, astronomical sums which we should think about very carefully before voting.

Mr. Palmer: The hon. Gentleman referred specifically to the electricity and gas industries and used the words "subsidies" and "losses". They are nothing of the kind. They are deficiency payments forced on these industries—the industries do not want them—by the Government's policy.

Mr. Pardoe: That I entirely accept. I am grateful to the hon. Gentleman for saying that. I had so accepted it within my own thinking that perhaps my words did not adequately emphasise the point. I come back to the question of subsidies in general and in particular—

Mr. Joel Barnett: Before the hon. Gentleman does that, will he clarify one point? Is it his view that there should not have been a subsidy, that there was no need for the deficiency payment, that there should not have been a consumer subsidy on the price of fuel?

Mr. Pardoe: The hon. Member for Heywood and Royton (Mr. Joel Barnett) should wait until I have made my speech. There is quite a long way to go before I deploy the full extent of the argument, but it distinguishes between different types of subsidies and different industries.

Mr. Biffen: I am sure the hon. Gentleman will recollect that after 19th July 1971, when the Government had introduced the original package of measures which incorporated the beginning of this restraint, the financial consequences of which we are now debating, he said in the House of Commons on the following day, as reported at col. 1308:

It would be extremely churlish for anyone in opposition or in Government not to welcome the measures announced yesterday."—[OFFICIAL REPORT, 20th July 1971; Vol. 821, c. 1308.]

Mr. Pardoe: That is perfectly true and, throughout the periods of both the Labour Government and the Conservative Government, I have consistently supported the principle of a prices and incomes policy—but not this prices and incomes policy and not this measure of distinguishing between fuels and distorting the choice. It is that point with which I am primarily concerned today and on which the reasoned amendment, if it had been selected, would have enabled us to divide the House. We may now have to divide on the general issue. I come, therefore, to the question why there should be subsidies at all.
I suppose that the first reason for any kind of subsidy is to bring the essentials of life within the reach of the poorest citizen. That is undoubtedly how the Government would justify subsidies of one sort or another. For my money it is always better to bring the income of the poorest citizen up to the level at which he can afford the essentials of life at their economic cost. It is much more efficient, it involves far less bureaucracy and there is far less waste in simply circulating money between the same people. That is why I have consistently advocated pensions which are high enough for people to live on, without recourse to free seats at the cinema or free seats on the buses. That is also why I have consistently advocated increased family allowances, statutory minimum earnings and a wages threshold within a prices and incomes policy which guarantees wages against a rise in essential commodities. That is all part of the same principle—to raise people's incomes rather than subsidise the goods which they buy.
The second reason for subsidies could be said to be that one would prefer to pay for something by taxation rather than by prices, and one can argue that there are certain parts of the economy where this is reasonable. In certain situations, it might be more efficient to collect money through taxation. For example, it is much more efficient to collect the cost of dustbin emptying through the rates than by picking up 10p,


20p or 25p per dustbin each week. Certainly, it might become more efficient to collect London Transport fares by means of a general transport tax and to have fare-free transport in London. But it is sensible to do this in the name of social justice only if the people who are getting the benefit of the free goods are not also paying the taxes. It is possible to argue that in certain situations it might be more efficient to use taxation, but they are very limied situations.
We therefore come to the question, who will pay for these deficiency payments, subsidies or whatever we call them. Who will pay the money that is provided for in this Bill? We do not have a progressive tax system. In total, the poor pay a higher proportion of their income in taxes than do the middle class. Moreover, everyone is a taxpayer. It is no longer a question of saying that, because people do not pay income tax, they are somehow not paying for these services. The fact of the matter is that we gather large amounts from consumer taxes of one sort or another. Therefore, everyone is a taxpayer and everyone is paying for these deficiency payments.
But not everyone will be sharing the benefit equally, because, for example, the rich use the postal services more than the poor, and the rich spend a higher proportion on fuel, electricity and gas than do the poor. So where is the social justice in this measure? I do not believe that it exists, and I also do not believe that one can even start to argue about social justice.
My third point on subsidies is that it may be argued that to pay for them by taxation is less inflationary than to pay for them through the price mechanism. Since the Government are endeavouring to bring down inflation by halting price rises in, say, the electricity industry and to pay for them through the tax system, I imagine that they believe this argument. I cannot see any economic rationale for that argument. Taxation is a strong inflationary force, however one raises it. It is inflationary, whether it is collected through income tax which thereby puts pressure on people to apply for higher net incomes, or through consumption taxes.
My fourth point—which was made by the Chief Secretary—is this: if this money

is available, why spend it in this way? Why not spend it on food or on more low-cost housing for poor people or old people? If we are trying to assess the sum total of human happiness—if human happiness is the criterion—how do the Government know that more will be added to it by subsidising the price of electricity than by providing, for example, better geriatric services? I do not see how it is possible for any Government to make that kind of decision, and I do not think the Government have attempted to make that kind of decision in this case. I recognise that these are general questions about subsidies, but the Government must answer them before committing us to this kind of expenditure.
I move to the question of how we run our nationalised industries, which is of immense importance.

Mr. Bruce-Gardyne: So that there is no misunderstanding at all about where the Liberal Party stands, may I say that the hon. Member has frequently demonstrated that the Liberal Party is passionately committed so extremely rigid prices and incomes policies. He has told us that he would compensate the lower paid with minimum income guarantees. But apart from that, is it the policy of his party that prices and incomes should be controlled but that the nationalised industries should be entitled to charge the prices that are required to obtain a commercial return?

Mr. Pardoe: No. As I have often made clear, in a Liberal prices and incomes policy there would be no prohibition on anybody charging anything at all, or earning anything at all. I have carefully used the word "prohibition". It is when one starts to prohibit and to fine people for breaking a prohibition that one runs into the kind of nonsense which the Government have run into.
But there is no reason why one should not tax those who raise their prices excessively, earn excessive profit margins or get increased wages above what the economy can stand. That is the purpose of a sane prices and incomes policy, and that is the only legitimate way of enforcing it.
It is absolute nonsense to say that I am in favour of an extremely rigid prices and incomes policy. I am in favour of a statutory prices and incomes policy, but,


by using the tax system and fiscal penalties to police it, I would allow the maximum possible flexibility while giving the Government the necessary degree of control over the totality of price rises which are needed.
The proposal before us is to spend £146 million in compensating certain statutory corporations for past losses and up to £400 million for future losses, and it is suggested that these losses have been, and will be, incurred as a result of price restraint under the Government's prices and incomes policy. Therefore, I want, first, to ask the Government how to distinguish between losses incurred as a result of the prices and incomes policy and those incurred through general mismanagement, inefficiency or any other reasons. If we concern ourselves for a moment with the electricity industry—and, after all, £102 million of the £146 million will go to the electricity industry in deficiency payments—the Government require 7 per cent. on net assets. That is the standard laid down, which I think is agreed on all sides of the House, though some of us might now think that it is rather a low return on net assets. But that is how it has been agreed. It was certainly calculated with a view to what is needed for investment for expansion of the services. Over the past three years—and I hope the Minister will follow the arithmetic carefully—the difference between what those boards should have made in order to get a return of 7 per cent. a year and what they actually made is more than £300 million. So why only £102 million?
The Minister said that there was no way of compensating them for that sort of theoretical deficit—the difference between what they got and the 7 per cent. return. But even if we assume that the subsidy is intended to cover only the accumulated deficits, which is the excuse the Minister used, without concern for the return which they should have made, we get figures which again do not add up. For instance, for England and Wales there was a deficit over these three years of £77 million accumulated. Yet the subsidy for England and Wales is £96·2 million, which is £19 million more than the accumulated deficit over the three years. Why is that £19 million there?
If the electricity industry is not allowed to earn 7 per cent. and it is not to be compensated for this inability by some further deficiency payment or subsidy, how will future investment be financed? There is a double distortion here. By artificially reducing the price of electricity through this deficiency payment, the Government are increasing the demand for electricity and they are allowing no way by which the industry can provide the investment to meet that extra demand.
As I understand it, there is no statutory or technical way in which the electricity industry can actually fail to meet the demand for electricity. In other words, it cannot say "No, you cannot have it". It has a statutory obligation to meet the requirements. With what is it to meet them? We have reduced the price by means of a subsidy. We have increased the demand. Therefore, there must be increased capacity, but there is no extra money with which to produce the increased capacity, save money borrowed from abroad to finance investment which can never show a proper return.
I have the Campaign Guide for 1970, a very interesting document in the annals of the Conservative Party, and on page 237 there is reference to borrowing abroad:
Under the 1968 Gas and Electricity Act, the 1969 Iron and Steel Act and the Air Corporation Act, the Government … plan to give several of the nationalised industries powers to borrow money abroad to help finance their capital expenditure. The evident hope is that the industries would thus play their part in the general riot of borrowing which has attended the period of Labour government …
I do not mind a Government changing their policies, but I object to the way they hawk admonitions around at election time and then come here and stand on their head in public. It is most indecent.

Mr. Palmer: The hon. Gentleman was on a very interesting point just now, on the question of the rate of return to the electricity supply industry. He was accurate when he gave the rate of return for the last three years as 5 per cent. I hope he has not overlooked the fact that the average rate of return for the last six years was 7½ per cent. The truth is that the industry is being compelled to live on its fat in order to get through at all.

Mr. Pardoe: I accept the hon. Gentleman's argument. I agree that the record of the electricity industry up to the time when the Government took over was creditable. I would say to him that this Bill is a massive argument against further nationalisation. In fact, the trouble with nationalisation is that sooner or later under our democratic system, worse luck, a nationalised industry should have the misfortune to be under a Conservative Government, so that it will be run down in order that it can he hawked around in the Campaign Guide at the next election as an illustration of how bad nationalisation is. I have no doubt that the figures which have been quoted for the last three years will be added to the record in the next Campaign Guide so that everybody at the next election can read how bad the figures are. The Government's policy would seem to me to lead to a permanent subsidy for the industry.
The Minister, opening the debate, kept harking back to the idea that some day in the golden future—he seemed to indicate that it would not be too far away—we would all be back to the marvellous times when the electricity industry paid its way without any need for deficiency payments. But since the investments will always have to be paid for across the international exchange, and no Government will be able to summon up the courage to raise the price of electricity to consumers sufficiently to finance it, it seems to me that we are committing ourselves to a permanent subsidy for this industry with no hope of any change.
What is the consequence of a permanent subsidy in an industry? It certainly is not high wages. The evidence is that industries which are permanently subsidised are low wage industries. One can appreciate the reasoning for that. Nor is it high morale. There is nothing more soul destroying than having to work in an industry which cannot pay its way and which has no prospect of so doing. I fear that the electricity industry is moving into that position.
What incentive to efficiency will these industries have in the future? This is where I come to the clause which guarantees future losses as opposed to past losses. Future losses are guaranteed by the Bill, and they are guaranteed, as far as one can see, for any reason whatever. We shall have a situation in which the

inefficient area board will make a big loss and it will receive a tax hand out to repay the loss, while the more efficient area board will make a smaller loss and the reward for that board will be a smaller tax hand out. A board which made a profit—and that would be very difficult in these conditions—would get no hand out at all. What kind of incentive to efficiency or high morale is that?
These subsidies, if they are to be paid, cannot be related simply to the size of the deficit. They must be related in some way to increases in costs. There must be many other incentives built in to greater efficiency. Unless we measure the performance of nationalised industries by their return on capital, what other tools of measurement do we have? There is no other economic tool to hand. We must have efficiency audits. But what criteria are we to use? If we do not use output per pound invested, which we cannot, what about output per pound of wages paid?
Some industries will always have to be subsidised, and I recognise that. This is not a total and general condemnation of subsidies for all industries. I do not see a situation in which one could envisage the railways not being subsidised. I doubt whether we shall see a situation in which the postal services can work without some form of subsidy. Certainly there will have to be subsidies for some industries on environmental grounds as well as on social grounds. But a general subsidy to industries whose only problem is over-demand for their products—and that is the case with the electricity industry; that is its only fault—is crazy.
I come to the implications for energy policy. This Bill will lead to gross distortions in the market. The Government's policy has already led to gross distortions in the balance between supply and demand and the choice of different fuels. If we subsidise electricity we increase demand for it. We make it sensible, at the margin, to use electricity rather than something else. Here in this Bill we totally part company with economic sanity. Under what rationale should we be encouraging people or industry to use electricity, of all conceivable fuels? The process of turning natural fuels, whether coal or oil, into electricity is one of the least efficient


technologies in our technological society, Estimates vary, but, even at the best two-thirds of all the oil and coal which go into a power station are wasted. That is inevitable. There is nothing that we can do about it with modern technology. A fuel and power industry symposium recently estimated, taking into account the loss in the distribution system, that by the time the electricity gets to the factory or the home there has been a loss of 80 per cent. By the time it has been turned back into energy or heat the system may not be much better than 1 per cent. efficient and certainly not better than 10 per cent. efficient.
That is a colossal wastage of coal and oil. They are desperately precious materials which we need to conserve. On the best estimate possible we are by the Bill paying people with taxpayers' money to use a fuel which involves throwing away 90 per cent. of all the coal and oil which we use in its generation. By reducing the price and increasing the demand for electricity we are forcing the building of more power stations in which to throw away more and more of our precious natural fuels and imported fuels.
There is a lot we can do to improve the position, but electricity-generating power stations are inherently inefficient converters of fuel. The turbines are driven by steam, but they are not capable of using the heat energy which comes from turning the steam back into water. They can use steam only after the steam emerges from the turbine. Having generated electricity there is still a kind of energy in the form of heat that must be cooled. That is done in cooling towers or other artificial wastage systems. The steam can be used for district heating, but it is not really hot enough for that. If it is made a little hotter the generation of electricity is made less efficient because 60 per cent. of the heat must escape. We must continue to find new ways to use the heat.
The most effective way to conserve fuel is to discourage its use in power stations. When the fuel is used directly by industry for the generation of electricity, the surplus can often be used. For example, there are many industries which are substantial steam users. The paper industry needs the heat from steam for drying its paper. It is only efficient for industry to

generate its own electricity when and where there is a need for steam. Many industries require steam, but not all the time. Therefore, there are occasions when an industrialist will need to take electricity from the grid. There may be times when he will want steam but not electricity. He will want to sell electricity to the boards, which the boards do not like. They do not want to buy electricity.
I know that there are difficulties but they must be overcome. We must make the generation of electricity in industry possible and attractive. The same savings cannot be found in the domestic sector. That is partly because there is much smaller consumption. The modern domestic boiler is a more efficient converter of fuel into heat than the power station which makes electricity. It makes no sense to encourage people through deficiency payments to heat their homes by electricity. The main distortion caused by the subsidy is in the industrial sector. If the Government wished to buy off the votes of domestic users of electricity they could do so by a selective subsidy. The two-part tariff raises no problem. But that is no reason for subsidising all industrial users of electricity.
The industrialist faced with the decision of choosing at the margin whether to use coal or electricity over the past three years has found an easy answer. The price of electricity to the industrial user has risen during the past three years by an average of 4·7 per cent. per annum whilst the price of pithead coal has risen by 12 per cent. Without the subsidies which the Bill would provide and if we had not forced down artificially the price of electricity, the two increases would be much more in balance. Therefore, the choice at the margin would be in favour of the use of coal by an industrialist rather than the use of electricity.
I can see no reason for taking such a course, whatever should have happened in the past and whatever the consequences now forced upon us by the Government's action. Whether or not it is possible to make an argument for the £146 million to compensate for past policies, it is impossible to make an argument for voting tonight for the expenditure of up to £400 million for the extension and continuation of these mistakes. For that reason the Liberal Party will not be supporting the Bill.

5.40 p.m.

Mr. J. Bruce-Gardyne: I found myself in a fair measure of agreement with what the hon. Member for Cornwall, North (Mr. Pardoe) had to say on behalf of the Liberal Party about the unwisdom of subsidisation by providing deficiency payments for the electricity boards. I must confess, however, having listened to the hon. Gentleman with great care, that I am completely in the dark as to the views of the Liberal Party, if the hon. Gentleman is the exponent of its views. If a prices and incomes policy should be as the hon. Gentleman has indicated in the past, a great deal more complex and detailed than the policy which the Government have chosen, does the Liberal Party believe that that argument can be sustained against a background which allows the nationalised industries to charge prices so as to obtain a commercial return from the market? That is a point on which the Liberal Party's views, as expressed by the hon. Gentleman, are a mystery to me.
I must congratulate my right hon. Friend the Chief Secretary to the Treasury on the way in which he introduced the Bill. It was enormously to his credit. He took no pride in the parenthood of the Bill. That was right. It is a bastard little Bill. My right hon. Friend did not seriously try to pretend it was anything else. That is very much to be desired.
Perhaps my right hon. Friend could have chosen a more colourful name for the Bill. I can think of several more colourful names but, in the interests of brevity, I will not elaborate upon them. Given the name which it has been given, I am bound to put it to my hon. Friend the Minister of State, Treasury, who will reply, that there is something about the Bill which recalls an answer which Harold Macmillan gave to a question put by Robin Day in Moscow in 1961, when he said that it was neither the time nor the place nor the person for that particular question. This is not the time or the place, and I should like to think that my right hon. Friend the Chief Secretary was not the person, for this Bill.
As I see it, it has essentially three elements. The first is a record of past follies, the second part is a pledge of future misbehaviour, and the third is a

commitment of perhaps a large part of our invisible surpluses in the years ahead to the repayment of indebtedness which we are now incurring.
The right hon. Member for Bristol, South-East (Mr. Benn), who is no longer in the Chamber, drew our attention to some comments made by my right hon. Friend the then Secretary of State for Trade and Industry in 1970. I confess that my eye had also fallen on the same phrase. It is to be found in a famous speech which was made at Blackpool. I shall briefly take the House a little further back than that, to the point at which the policy of stating commercial targets for nationalised industries was first undertaken. I am sure that you, Mr. Speaker, will have a clear memory of that occasion. I am referring to the 1961 White Paper. I shall quote one or two passages in Command 1337 which are worth consideration. First:
It would … be unwise to ignore the risks of damage to the nationalised industries themselves and to the economy generally that is inherent in the present position.
I will come back to what the position was at that time.
If the profitability of capital development is assessed on different (and easier) financial criteria from those adopted in industry generally, there is a risk that too much of the nation's saving will be diverted into the nationalised industries. Again, if the prices of the goods and services which the nationalised industries provide are uneconomically low, demand for them (and for investment to produce more of them) may be artificially stimulated.
This was the point which the hon. Member for Cornwall, North was adumbrating. The White Paper said:
Thus, the operation of the nationalised industries with an unduly low rate of return on capital is sooner or later damaging to the economy as a whole. It must result either in higher taxation or in greater borrowing by the Exchequer in order to provide for the replacement of their assets and for new development." …
It follows from all these considerations that the State, as owner or guarantor of the capital of the nationalised industries … would expect capital employed in this kind of business to earn a higher rate of return than the cost of the money to the Exchequer.
The White Paper concluded that:
… although the industries have obligations of a national and non-commercial kind, … ought not to be regarded as social services absolved from economic and commercial justification.


The interesting thing is that that position was one in which
… the return on capital employed in one or two of these undertakings has been 8 per cent. per annum net after depreciation at historic cost …
… most of them have over the years earned considerably less than 5 per cent.
How happy we would be if we saw the prospect of their earning 5 per cent. today.

Mr. Russell Kerr: Whose fault is that?

Mr. Bruce-Gardyne: I am not seeking to avoid the question of where responsibility lies. We came to office pledged to build on these foundations. To my mind that is important to our consideration of the Bill in order to see what lies behind what we are doing in it. There have been various studies recently of the relative performances of the public and private sectors over the years since the Labour Party embarked on a massive extension of the public sector after the war.
I do not know where the right hon. Member for Bristol, South-East got his blind assertion, for which he provided no supporting evidence, that by any objective criteria the performance of the nationalised industries compares favourably with that of private industry. I am not aware of any such objective criteria. It is true that various studies have been made, but the one thing common to all of them, whether they think the nationalised industries have performed better than the private sector or vice versa, is that there was a dramatic improvement in the performance of the nationalised industries in the 1960s as compared with the 1950s. The reason for that dramatic improvement was largely the 1961 White Paper and the establishment of financial disciplines and guidelines for them.
The Conservatives came to office pledged to build on these foundations. But in July 1971 the Government decided to throw them away. The infant we are discussing started gestation on that day when the Government formed their somewhat unhappy liaison with the CBI to try to control prices. My right hon. Friend the Chancellor of the Exchequer then said that

the chairmen of the nationalised industries have been informed that their investment programmes will not be affected as a consequence of this price restraint
and
that the Government control over the industries will not on that account be increased …"—[OFFICIAL REPORT, 19th July 1971; Vol. 821, 1038.]
I do not know, but I doubt whether many chairmen of nationalised industries would be entirely prepared to concede today that the second part of that undertaking has been in every way fulfilled. Certainly, the financial consequences of the decision taken on that day in July 1971 and which we are seeing some reflection of today have been daunting.
The right hon. Member for Bristol, South-East mentioned some of these consequences. He did not refer to the £1,000 million of accumulated loss and capital debts of the National Coal Board, the British Steel Corporation and the Post Office, written off in 1972 before we came to the question of the subsidisation of prices. The great justification is that this was all done in the public interest in sustaining a prices and incomes policy.
As my right hon. Friend the Chief Secretary to the Treasury is aware, I am extremely sceptical about the arguments that our prices and incomes policy has achieved anything at all in terms of abating the rate of inflation any more than any prices and incomes policies, either in this country or any other, have done before. So it is not a justification which I find very easy to stomach.
I hope that in the Government's reply our point about this justification will be dealt with. In Clause 1(1)(a) we are told that we are compensating the nationalised industries for
their compliance with the national policy relating to limitation of prices
in the financial years 1971 to 1973. Up to the autumn of 1972 there was no national policy for the limitation of prices, and so the justification which my right hon. Friend gave, for the condition that we have gotten the nationalised industries into, in effect only arose in the winter of 1972, and is not really relevant to the period before that. However, as several hon. Members have pointed out, there is the broader issue of which particular items one chooses to subsidise.
I want to quote something said by my right hon. Friend' the Secretary of State for Trade and Industry, that
… to subsidise … would simply increase demand and therefore the shortages. But even if there were no shortage, a subsidy, which by itself would merely increase demand, is of its nature open-ended and is one which no Government could contemplate without serious consideration."—[OFFICIAL REPORT, 7th May 1973; Vol. 856, c. 62.]
Of course, my right hon. Friend was referring to food subsidies, but there is not one word of that excerpt which does not apply with equal force to the subsidisation of the prices of the nationalised industries.
The hon. Member for Cornwall, North drew attention to the dubious logic of encouraging the expansion of demand in the electricity industry at a time of incipient power crisis. He made the case clearly, and I do not think there is need to say any more about it, but we must bear in mind, as he said, that a substantial part of the money we are asked to vote tonight is to achieve that purpose.
My right hon. Friend assured us that it was the Government's objective and undertaking to return these industries on to a position of proper commercial targets and financial objectives as soon as possible. I wish him luck. It is going to be an increasingly uphill struggle. I will quote what the Chairman of the Electricity Council said last January:
A precipice has to be climbed to make good the cumulative effects."—
that is, of price restraint on the nationalised industries, including the electricity boards, of course—
and the longer price restraint continues the steeper the precipice will become".
All one can say to that is "Amen". The sooner we put on our climbing ropes the better.
If we are to do all this, however, in the so-called national interest, as the civil servants prescribe it, at least we might expect it to be done with some coherence. Last summer, some of us received an interesting Press handout from the Department of Trade and Industry saying:
A Super Department—Does it work? Mr. Peter Walker tells young businessmen of the DTI's achievements".
There are several phrases which caught my eye, but here is one which has some relevance to what we are discussing today:

It can"—
this super-Department can—
develop a more systematic policy towards the expenditure of public money in support of industrial success".
Is that what we are doing today? Is that what we have been doing under the financial arrangements which we are now discussing? I do not know, but I was interested to see in my files that in July 1972 The Times reported that:
within the Department of Trade and Industry support is growing for the idea of building special sections into their State industries' accounts which will identify as closely as technically possible the costs of observing price restraint or social obligations".
That was 18 months ago. I do not think that we have heard much more about it since.
However, I was delighted to hear from my right hon. Friend that we are to read into Clause 2(5) of the Bill that the attempt is to be made henceforth to write into the price subsidisation arrangements for the nationalised industries some yardsticks for monitoring their performance. I do not think that that will be at all easy, because I fear that, once we take away the price yardstick and the yardsticks, however often neglected, in the 1961 White Paper, we shall not easily find another substitute.
Up to now, what we have seen has been an operation in precisely the opposite way. My right hon. Friend explained why it had been considered unavoidable that the electricity boards, for example, should be compensated on the basis of their deficits rather than on the basis of revenue forgone. The consequences of this method of approach were clearly summed up by the former chairman of the South-Western Electricity Board when he said that they put a premium on inefficiency and penalise financial prudence. I do not think that one can say much better than that.
Now, a few words about Clause 4.

Mr John Golding: Hear, hear.

Mr. Bruce-Gardyne: No; not that one. We heard enough about the hon. Gentleman's Clause Four from his right hon. Friend at the beginning of the debate.
Clause 4, I think, needs elucidation from my hon. Friend the Minister of


State. It relates to the manner in which the nationalised industries have been and are to be used to finance the balance of payments deficit. I agree with my right hon. Friend that, in present circumstances, it is desirable that we should not, if we can help it, allow the exchange rate to fall much further than it has fallen already. The question is: which is the best way of going about it, even assuming that we have to face substantial trade deficits for several months to come, which will have the inevitable consequence of tending to drag the rate down?
Superficially, the method we have chosen, of getting nationalised industries to raise their money in the markets of the Community and elsewhere, has certain attractions over the Labour Government's technique of borrowing from the Internaional Monetary Fund and having regular visits from Mr. Richard Goode, though I confess that it sometimes seemed to me, in the days of the Labour Government, that Mr. Richard Goode performed a useful service. It was at least thanks to Mr. Richard Goode that the Labour Government were at long last obliged to pay some attention to monetary policy and to impose some monetary disciplines upon themselves.
The more anxious consideration, however, is that these borrowings will have to be repaid, and repaid, in all probability, at a rate of exchange more unfavourable than when they were taken up. I hope that my hon. Friend will, therefore tell us to what extent we have, in a sense, pre-committed our invisible earnings in the years ahead. Where do the heaviest burdens of payments of both capital and interest fall, and how substantial are they? I am beginning to wonder whether we are facing a situation in which we may expect a substantial proportion of our invisible earnings to be eroded in the years ahead, which I suggest has fairly serious long-term implications for the balance of payments.
I wonder whether my hon. Friend can tell us at this stage anything about the terms on which individual loans have been concluded. It was reported in the Press that the Electricity Council's loan is proving very expensive. Is that so? Is that speculation justified? It will be helpful if my hon. Friend can say something about that. Information on this

aspect of the matter would certainly help us to judge the validity of Clause 4.
I am in no sense—least there should have been any doubt about it—an advocate of the nationalised industries. On the contrary, I favour a far more ambitious programme of denationalisations than we have so far seen, not least—to my mind, this is the crucial argument against the course which the right hon. Gentleman was advocating—because, so long as we have a large public sector, the civil servants in Whitehall will insist on abusing it in precisely the way we see here in discussing the consequences of such abuse tonight. They will use it for all sorts of imagined public interest purposes—controlling prices, diverting its investment, and rigging its commercial judgments at every turn. That will happen so long as the temptation is there. To my mind, this is the strongest possible argument for proceeding with a vigorous programme of denationalisation.
Let us be in no doubt, however, that what we are doing here amounts to a programme of creeping back-door nationalisation, for at a time when the private sector is required to cope with unprecedented interest rates nationalised industries are encourage to extend their custom by the enjoyment of taxpayer price subsidies.
We cannot do other than grit our teeth and pay for follies already committed, but in Committee we shall have to scrutinise the Bill carefully and the arrangements for the next year and a half. All this has been done in the name of curbing inflation. In my view, it is nothing of the sort. Far from curbing inflation, the subsidising of the prices of the nationalised industries diffuses resistance to inflation and to price increases, it increases the borrowing requirement, and it increases the Government's problems of monetary management. At the end of the day, far from assisting in the control of inflation, it perpetuates the disease with which it is intended to deal.

6.5 p.m.

Mr. Russell Kerr: I rise to make a brief contribution to this debate, principally because for the past six or seven years I have been a member of the Select Committee on Nationalised Industries and for the past three years its vice-chairman.
The problem with which the Bill attempts to deal is one with which we on the Select Committee have been attempting to grapple over the years, and especially in the past two or three years. If Governments reserve unto themselves the right to use various of the nationalised industries as instruments of national economic planning, at least to the extent of having their pricing policies determined by ministerial intervention, how does one deal with the question of their likely failure to meet the financial targets which are supposedly the main incentive for efficiency in the industries concerned?
In their origins these problems go back to the various nationalisation measures undertaken by the 1945 Labour Government which, navigating in somewhat uncharted seas, decided on the statutory corporation as the standard form of administration for each of the industries concerned. They laid it down that, in normal circumstances, each industry should be self supporting "taking one year with another."
In 1961—and this point was mentioned by the hon. Member for South Angus (Mr. Bruce-Gardyne)—a White Paper appeared entitled "The Financial and Economic Obligations of the Nationalised Industries." It sought to clarify the general statutory duty of the nationalised industries to break even and to make a contribution to reserves by suggesting financial criteria by which their programmes and plans were to be measured.
According to the 1961 White Paper, each industry should, seek to cover its costs, including the service of capital and provision for the essential replacement of depreciating assets, over a period of no more than five years and to achieve a surplus over the period towards the cost of financing their new investment.
The general idea was that these factors taken together, would constitute a financial objective and that the industry's target would be set by reference to this financial objective, but also by taking into account its needs and capabilities in relation to these criteria and also to each industry's differing, social and statutory obligations, conditions of demand, domestic costs and other things peculiar to each industry.
Although the White Paper suggested setting targets mostly in terms of a percentage return on the net assets, it was acknowledged that that was not the only criterion which could be devised. Because it was felt that targets should reflect sound investment and pricing policy, and not vice versa, it was acknowledged that where significant changes occurred in the circumstances of an industry the Government would be ready to review the target within the period set and to revise it upwards or downwards.
Today, we broadly have the situation where current financial targets have been arrived at as a result of discussion—perhaps "confrontation" would be a better word—between the Government and The industry concerned and by agreement with the Minister who sponsors that industry in the higher echelons of Government. This is a situation which, in large part, because of the present Government's new-style brand of economic management and the attendant inflation which it has produced, has left nearly all of the nationalised industries in a state of confusion and disorientation without any real idea where they are going or how they are going to get there, and substantially relying on Government largesse—retrospective as to three years as well as prospective as to two more—to bale them out.
It is easy to poke fun at this kind of situation where a Government does not know whether it is Arthur or Martha and meanwhile great national—and nationalised—industries are in the throes of uncertainty and indecision as to their future investment and other plans on which their success in the future will undubitably depend. What is, however, even more worrying—certainly to those of us who have been charged by this House with overseeing the general health of these industries and reporting our findings to the House from time to time—is that this Bill, or rather the need for it, is proof positive that financial targets in respect of almost all the nationalised industries have had to be abandoned in recent years.
Without doubt, the disciplines laid down in the 1961 White Paper and elsewhere for the financial management of nationalised industry have been thrown out of the window. A number of my hon. Friends and I would like to know what is to replace them. Having regard to the


fact that these industries have had to wait almost four years before being told—much less paid—the moneys due to them by way of compensation, how much longer can we condone a situation which inevitably produces chaos and uncertainty and which is the very antithesis of rational, planned operation of these most important national enterprises.
Having had a chance to study various aspects of these industries over the years, I wish to finish by expressing my personal opinion that a public and most detailed inquiry is needed, possibly even a Royal Commission, to inquire into whether the statutory corporation is the best and most appropriate form of administration for these industries. With the 25 years of experience we now have behind us, we should examine them and a fundamental reappraisal should be made of what without doubt is a vital and indeed indispensable part of our economy.
The nationalised industries of Britain have served us well, but as custodians of the people's interest we must ensure that they are allowed to serve the nation, not merely well, but to the greatest possible extent—something which has not yet begun to happen.

6.12 p.m.

Mr. Ian Lloyd: Before I add my mite to the high degree of unanimity that seems to be prevailing in the debate, I should like to pay my personal tribute to our late colleague Gerald Nabarro. He sat assiduously in this corner of the Chamber and added great colour and great courage to our debates. If in political terms he coruscated like a catherine wheel, unlike a catherine wheel, which leaves nothing behind it, our late colleague left considerable Acts on the Statute Book and, perhaps more important, an example to back benchers that the House will not soon forget.
This is an interesting debate on an important subject. I wish to begin by referring to a point made by the hon. Member for Cornwall, North (Mr. Pardoe) who, I am sorry to see, has now left the Chamber. Throughout our debates on almost any subject there occurs over and again the intriguing phrase "social justice". The hon. Member for Cornwall, North brought it again

into our debate this evening. It is produced on many occasions as though it is an absolute touchstone by which all polices can be tested and found wanting or not wanting.
The House is unwise if it gives this criterion such absolute predominance, although it must be a matter of the utmost importance to hon. Members on both sides of the House. At most this phrase will always be vague and remote—something that will change through the decades. It will be asymptotic to the ideal—in other words, an ideal which recedes as one approaches it. Therefore, this must not be thought to be the dominant criterion.
The right hon. Member for Bristol, South-East (Mr. Benn) made some interesting observations and in his rather amusing criticism of the Conservative abandonment of our fortress he likened us to the pill boxes occupied by the French Foreign Legion in the desert. It is worth recording that in their time in the context of the ·303 those pill boxes served the Foreign Legion well. If I contrast the intellectual fortress occupied by ourselves and that occupied by the Labour Party, I would say that the Labour Party's fortress reminds me of those vertical towers on the west coast of Ireland. They have a narrow base; they can be occupied by only a few; and those who go in have to pull up the ladder behind them. They were easily smoked out and, I gather they were not very effective. That is probably the best way that I can describe the intellectual fortress of Socialism today.
A more important point is the abandoning of the market economy. In an interesting analysis of the relevance of this debate to the energy crisis, the right hon. Member for Bristol, South-East suggested that probably the problem would be solved only by some form of public sector policy, or by public authorities. Throughout the western world public authorities undoubtedly will have their part to play in solving what will probably appear in the rest of the decade as the most central political and economic phenomenon of our age—the energy crisis. But in view of the way in which the market economy of the United States is beginning to react to the threat that it assesses, I shall be surprised if someone cannot stand here in five years and point


to the remarkable and significant achievement of the private sector of the United States in response to the challenge.
The right hon. Member for Bristol, South-East also suggested that in recent years capital expenditure in the public sector had had a creditable performance, whereas that in the private sector had not. The figures are interesting. Section 11 of the table on capital formation in the National Income Blue Book, which gives the figures adjusted for price, shows that, starting at 1969, for example, total capital expenditure in the private sector moved from £5,043 million to £5,441 million whereas that in the public sector declined from £3,999 million to £3,941 million in real terms. That puts the record straight in that respect.

Mr. Palmer: I fail to understand how those sets of figures are comparable.

Mr. Lloyd: Possibly they are comparable in the sense in which they are presented in the table, but they were used by the right hon. Member to illustrate that in some way the record of the public sector was more creditable because it maintained a higher rate of public investment. The figures show that that is not the case, whatever other conclusions one draws from them.
I turn to the speech of my right hon. Friend the Chief Secretary. For me it contained some intriguing and remarkable statements. Possibly the most interesting is that this may be the first occasion on which I have heard any Minister formally claim a public acceptance of responsibility for public expenditure. I am delighted to know that there sits the man who formally accepts national responsibility for public expenditure. My right hon. Friend will be hearing more from me as a result.
My right hon. Friend went on to say, in what must be described as the most distinguished understatement of the year, that we should not claim too much for the approach embodied in the Bill to solving our national economic problems. My right hon. Friend can say that again!
My right hon. Friend then argued that the policy was justified on political, psychological and practical grounds. The thought immediately crossing my mind was that something was missing. I waited in vain for the word "economic": it did

not come. It is to the economic grounds of the policy that I turn.
There are some remarkable phrases in the Bill. In the Preamble we find the phrase,
compliance with the national policy".
That in itself is an interesting philosophical statement. I wonder what the effect would be if the private sector as a whole were to comply with national policy in the sense that the nationalised industries are being asked. It would mean the virtual disappearance of profits throughout the private sector, and one of the main sources of revenue from which the public sector is financed would dry up and disappear.
In Clause 1(4) the phrase occurs
as the appropriate Minister may, with the consent of the Treasury, determine".
That seems to be almost a Freudian slip; if not Freudian, certainly it is frank. Perhaps it reveals an interesting commentary on the relationship between Parliament, the Government and the Treasury.
In Clause 2(4) we find the interesting statement that the amount which is demanded or which is to be permitted by the Bill
shall not exceed the deficit".
We are indeed fortunate. Then in subsection (5) we see that the deficit can be forecast by agreement. That, too, is an intriguing concept. What is even more interesting is to find in the Schedule that the forecasting by agreement of public deficits includes a public authority which is barely starting to spend public money—the Maplin Development Authority. My reaction is one of immediate caution and a consciousness of the need to beware.
In Clause 3(2) we discover that any sums raised under the Bill may also be credited either to revenue, or to capital account. That is a strange doctrine. What possible justification can there be for a blanket authority to credit sums of this kind to capital account when apparently the object of the Bill is to raise money from the general tax fund to apply to operating deficits in these industries? The extension to capital account requires fuller and more detailed justification.
I come now to a more fundamental aspect of the Bill in the House. We bandy about great sums of money.


Sometimes it is salutary to ask ourselves what these sums mean. Here we have three figures essentially involved. There is the £145 million which is the immediate sum demanded to pay past debts. It is worth pointing out when talking of past debts that the sum already written off in the past 10 years, according to the National Income Blue Book, is £2,879 million. In addition, in the same period there have been investment grants to this sector of our economy of £145 million and general subsidies running to the extent of approximately £1,300 million over the 10 years. We are talking about a record of public expenditure of the order of £4,000 million
Let us consider specifically the sums that Parliament is asked to consider today. We start with £145 million. Then we are told that the Government would like a revolving authority to spend £200 million in each of the subsequent years which may, at the entire discretion of the Minister, be increased by a further and not inconsiderable sum of £100 million.
Let us look at these figures in terms of some of the parameters of public expenditure. Let us take the first sum of £145 million and ask ourselves what percentage that is of the 1972 income tax and general fund of taxation received by the Government. It is 1·7 per cent. If we ask what percentage it is of current central Government expenditure for the whole of the United Kingdom, we get the answer 2·2 per cent. If we ask what percentage it is of central Government expenditure on capital account, we get 22·5 per cent. If we ask what percentage it is of the tax on all beer, wines and spirits, we get 13·6 per cent. If we ask what percentage it is of taxes on the income of private sector companies in the United Kingdom, we get 9·8 per cent. That is the minimum figure of £145 million. But we are being asked to authorise a figure which amounts in total to £645 million.
If I may go down that column again; it starts by being 7·9 per cent. of income tax and other tax revenue and it ends by being 43·9 per cent. of United Kingdom taxes on the income of private sector companies. This is a most significant sum which Parliament is being asked to vote. Many questions should

be asked about it and I shall endeavour to ask some of them.
First, will price restraint apply equally to the public sector and the private sector? I do not think it will, but has the argument for a differential been seriously pursued. I do not think it has. If it has not, on what ground is there to be discrimination against the public sector alone, since it alone must suffer the rigours of Government control, philosophy and policy? Why should the public sector alone be bailed out after suffering this discrimination?
There are many answers to these questions, and the House might consider some of them. Restraint is more severe against the public sector for reasons which some hon. Members on both sides of the House have already discussed. Prices in the public sector are considered to operate on the economy more rapidly, and therefore this sector is more easily seized. We are told that public sector prices are much more basic, that electricity and steel are part of the very fabric of industrial costs and that, therefore, they should be seized.
There is an argument that if no one bails out the public sector, it will ultimately collapse, as did the bus service in Santiago, Chile, which was frozen into a state of complete and ultimate physical immobility, and, to be politically neutral, I might add that there was a similar situation with the railways on Long Island.
Should public sector prices be artificially restrained more than private sector prices? Are there any good economic arguments for this? If we assume that there is a given fund of tax resources available, either to bail out nationalised industries' losses, or to cushion the impact on a particular set of economic forces in other ways, what is the argument in favour of doing it that way?
As my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) pointed out, if the mechanisms are brought into play not to restrict demand by artificially limited prices, all the productivity mechanisms within the industries are weakened. This surely cannot be a goal of economic policy. All the resource conservation mechanisms in the user industries are weakened by artificial distortion of the price system. As this process


continues, so this structure of prices operating in the economy diverges further and further from the structure of real costs and the responsiveness of the whole adaptive system of the economy is weakened.
If the procedure is right for electricity and for British Rail, why is it wrong for petroleum and private transport? Why do we not freeze oil company prices and guarantee their losses? It is not because the State is not the shareholder in these sectors, but because the cost would bankrupt the taxpayer and the distortion which would be induced would so inflate demand that the whole force of price mechanism would be unable to reduce it.
The distinction is not of principle, but of scale. That can be illustrated by saying that while King Canute can stand in a creek and hope to dam it up, he would have little hope of doing likewise in the Solent or the Wash, but that is what we are trying to do.
What is the net effect of the Bill? Nationalised industries' losses can be analysed into three components. There are first, natural losses, which would apply to efficient management in the public or private sectors. If management does something wrong, it incurs losses, and that can happen to nationalised industries as much as to any other industry. Secondly, there are losses due to artificially imposed price restraint at the level of demand prevailing before control. It is difficult to segregate the two components.
Thirdly a loss-making, or potentially loss-making situation arises when artificially cheap prices create an artificial expansion of demand. Ultimately, therefore the burden is transferred directly from the consumer to the taxpayer.
Then we must ask which taxpayer. The hon. Member for Cornwall, North asked that. One can only say in reply that it must be presumed to be financed pro rata by all forms of tax and as the total fund of taxation was approximately £15,000 million in 1972, the full sum amounts to about 4 per cent.
That leads to the central assumption of my argument which is that rising taxes are less inflationary than rising prices which impinge directly on demand. Can

that be proved? Have the Government endeavoured to make their own case? Has the House of Commons been asked to consider the Government's judgment? When was this policy first proposed? Has there been a Green Paper setting out the pros and cons of the Government's thinking? Have there been extensive discussions within either of the parliamentary parties? I can only say that with my perhaps imperfect knowledge I am not aware of it.
What notice have Parliament and the country had other than the Bill? Again, I do not know. I would argue seriously that the mood of national self-deception is becoming all-pervasive. Is not the Bill national self-deception at its worst? Is it not an extreme and, indeed, absurd example of the philosophy of "Let someone else pay", of shifting the burdens round and round in the hope that ultimately they will go away or disappear by some economic sleight of hand?
We indulge in this philosophy over and over again with almost every aspect of national policy which comes before the House, but seldom are the arguments put here, and even less frequently is the House asked to pass judgment on their validity. We talk continually of the cost of living, but does not that reinforce the view that the cost of living is not, as it is constantly being presented to the country, some remote abstraction? The question is always about the effects of the society on the individual and never the effect of the individual on society.
The Bill is asking for a blank cheque. Parliament is becoming a machine for writing blank cheques and Clause 2(7) notwithstanding—that is the clause that returns requests for capital to the House—that argument can be sustained. Is this not one of the most grotesque and extravagant blank cheques that Parliament has been asked to sign for many a long day? It is as well that there is no vote tonight because I could not vote for a request, presented virtually without argument, and certainly without convincing argument, for the House to give the Government the power, almost without further check, to spend £670 million. We are witnessing a scene which verges on the fantastic and the sooner we take a grip on the situation and bring the control of expenditure back to the Floor of the House, the happier I shall be.

6.34 p.m.

Mr. Arthur Palmer: The hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) often gives me the impression in these debates that in relation to his own Front Bench he is anxious to wound but afraid to strike. I congratulate him tonight, however, because he was in a rather more striking than wounding mood. Nevertheless, he still does not intend to vote against the Bill.
Another feature of his speech was the comparison he made between capital investment in publicly owned industries and in privately owned industries. That always seems to me to be a very barren comparison at the best of times because we must compare like with like. It would be completely unrealistic to compare the efficiency, the capital effectiveness, of say, ICI or Shell with British Railways because each lives in a different kind of world with a different kind of history. However, it would be fairly realistic to compare Shell and ICI with the British Gas Corporation or with the electricity boards. On that kind of sensible comparison the publicly owned industries come out rather well.
I regard the Bill as one of the saddest measures to come before the House this Session. It is intended to cover compensation or deficiency payments to the public corporations, the nationalised industries and services. These payments are not to be made because of practical inefficiency or financial failing on the part of the industries. That is not the Government's case tonight. They might have attempted to make that case in the past when in Opposition but they are not doing so now. These payments are to be made simply because of the admitted effects of the economic policy of this Government, who, I regret to say, continue to mismanage the affairs of this country.
Several of my hon. Friends will probably say something about the gas industry and the Post Office if they catch your eye, Mr. Deputy Speaker. I shall be content with electricity supply. In any case, the electricity supply industry, of all the industries we are considering tonight, is by far the largest investor of capital. That is the situation in all advanced industrial countries because electricity supply is basic to everything; it stands beneath and

props up the rest of the economy. It is a great industry. I have been connected with it all of my working life. It is an efficient industry, and normally it is prosperous.
It was efficient and prosperous before nationalisation and remained so afterwards. From 1st April 1948, when it was nationalised, until 1971 it showed a continuous run of good surpluses. These were built up while at the same time proper financial reserves were maintained, along with an adequate depreciation policy. The industry also generally showed a proper rate of return on capital, as has been demanded in recent years by the Treasury. Until about two or three years ago the industry was a model of what a good publicly owned industry should be. It was commercially well run and, as I pointed out during the Chief Secretary's speech, we had to wait for a Conservative Government in 1971 for it to go into the financial red for the first time when it showed a loss on its accounts.
It is no good the Chief Secretary claiming to be frank about what is happening and saying that therefore he does not need to be competent. Frankness is no substitute for competence. It is fair for us to put this point. After all, we discuss politics and from time to time attack each other in this House. I say the electricity supply industry has been pushed into a loss position by an administration whose members, when in Opposition, at conferences and places where people gathered were for ever lecturing the nationalised industries about the need to move on sound commercial lines and to operate economically. It is fair to point this out in the interests of political decency if nothing else.
I referred to some figures in an intervention in the speech made by the spokesman for the Liberal Party, the hon. Member for Cornwall, North (Mr. Pardoe)—though the Liberal Party is not represented here at the moment. In the six years prior to 1970 the electricity supply industry was operating at a 7 per cent. return on net assets. Since 1970 the return on net assets for electricity supply has shrunk to 5 per cent. The Government must take responsibility for that state of affairs; it is no good just being frank about it.
I have always argued that in a mixed economy—I am not talking about a completely planned Soviet style economy, the Gosplan as they call it, I believe, in Moscow, where they work downwards from the materials available—the publicly owned industries should generally charge for their services and products what the market will bear. Unless we have that kind of approach we will not get proper financial discipline or good staff morale. There is nothing more depressing than to work in an industry and find that, at the end of the day, after a hard struggle to be efficient, the scales are so loaded against it, because of a policy emanating from some external source, that it is bound to go into deficit anyhow. It is bad for morale. This has been the situation in the last few years in the electricity supply industry, as the power engineers know full well.
In this reflective mood I can appreciate the blunder made by the electorate in electing Labour Governments to nationalise industries and Tory Governments to manage them. The electors should not have wearied in well doing; they should have continued with a Labour Government both to legislate and administer.
The Minister's excuse is that the nationalised industries are basic to the Government's strategy in restraining price increases. They are indeed lucky to have some nationalised industries. Otherwise, it would not be easy to make the industries under discussion basic to their strategy.
As each day passes I become more and more puzzled about the need for special domestic price restraints. The Government themselves claim that bounding price rises have nothing to do with domestic policy. Their argument is that they are due to two main factors: first, world prices and, secondly, to a lesser degree, devaluation. However, as each month passes external factors seem to overwhelm more and more any possible internal factors. The ratio between the two is moving all the time in favour of the external factors. Therefore, if prices continue to rise because of world events, over which the Government have no control, it would seem that the policy of domestic price restraint, which

is an attempt to manoeuvre within a relatively small area, becomes a less intelligible and justified policy. Price restraint of this artificial kind is a medicine which gradually kills the taker. It cannot be persisted in indefinitely. Indeed, the Chief Secretary said that it would not be persisted in indefinitely. I hope not.
The Chairman of the Electricity Council, Sir Peter Menzies, in the last annual report, referred to the problems which the Government's policies create in pay negotiations and the arbitrary factors of timing which distort traditional pay relativities in the industry. The electricity supply industry suffers now very badly from such policies, as the technical staff now involved in industrial action know only too well. Their resentment is the greater because of a promise made to me in this House by the Secretary of State for Employment that these arbitrary factors which distort the relativities in the industry would be put right in another stage of the pay policy. That has not happened.
In The Times today I see that somebody has recruited the hon. Member for Melton (Miss Pike) to defend the Government, against the EPEA; she has had a letter published in that newspaper which mentions me. Her method of defending the Government is to say that the Secretary of State for Employment did not mean what he was saying when he spoke in the House in February and, therefore, he should not be blamed too much. The right hon. Gentleman is on record and he should try to find other defenders than those Members who have to use the columns of The Times rather than the facilities offered to them in this Chamber.
I will move quickly from the question of the bad effect of the Government's policies on morale, wages and salaries and back to the consumer and prices.

Mr. Golding: There is no hurry.

Mr. Palmer: I am obliged to my hon. Friend who, as a Whip, knows so much about these matters and is so indulgent.
I will return to the serious question of prices. What is the Government's future policy? I see that the Chief Secretary has returned to the Treasury Bench so I can now put the question


directly to him. The right hon. Gentleman said that the Government hoped to get back to normality. When? After the First World War many people thought that sooner or later they would get back to the normality of 1914, but they did not. On a somewhat lesser time scale I cannot see how the Government can get back easily to normality.
If we are to get back to ultimate normality we should be told where the Government's present policy is leading. Is it to be a perpetual subsidy? I dislike the use of the word "subsidy", but if we continue with the deficiency payment system it will begin to look more like a subsidy in the end. Will there be a perpetual policy of Government aid to iron out the contradictions in the nationalised industries brought about by Government policy? Will there be a gradual climb back, or, when the policy is finally declared a failure, will there then be a sudden rise in prices?
The Government must answer this question not only for the benefit of this House but for the benefit of those in the nationalised industries. They have a right to know because they have been charged indirectly by the House with the job of managing these great industries. The Government should make it plain to them and to the general public very soon what the future policy is to be.
There is also a question that the unions would like answered and I wonder whether any studies are being made of it by the Government. What is the correct price for electricity? The Chairman of the CEGB—he will not mind my quoting him generally on this—would say, as he has said in public, that his aim is to supply electricity to the area boards as cheaply as possible, that that is his statutory responsibility. A statement like that is always relative, and now that the Government are imposing these external restraints it is more relative than it used to be. What is cheap electricity? How is it determined?
By comparison with most of the other Common Market countries the United Kingdom charges a lower than average price for domestic supplies and more than the rest of Europe for industrial supplies. That presumably is why, a quarter of a century after nationalisation about 21 per cent. of British electricity for industrial purposes is still produced

by private generation. Now that they are doing so much financial planning of the nationalised industries' affairs the Government have a duty to do some studies on what the correct price should be by international standards.
One or two things in the Bill are good, such as the extra borrowing powers. At one time there were special Bills for this purpose, but the powers this year are now part of this Bill. These industries obviously must expand, particularly the basic utilities like gas, electricity and the postal services. Nor do I object to the industries being given powers to borrow abroad if they can. Publicly owned industries should be able to use profitably world resources of capital as do private industries.
However, it is interesting to remember that when this power was first brought forward in legislation proposed by the Labour Government it was strongly opposed by the Conservative Party. Looking at the report of the debate in, I think, 1968, I saw that the right hon. Member for Finchley (Mrs. Thatcher), the present Secretary of State for Education and Science, then a temporary Conservative Opposition spokesman on fuel and power, said that it would have the most adverse effect on the balance of payments. She was backed by the hon. Member for Honiton (Mr. Emery), now the Under-Secretary of State for Trade and Industry. He made, as one would expect, knowing the way he speaks, an even louder protest. We are used to the Conservative Party eating its words, but when will it stop?
We would do well not to vote against the Bill because we may need some of the powers it gives when we next take office, but we shall use them, I hope, for infinitely more just social policies than the present Government are pursuing in relation to nationalised industries and the public who use their services.

6.56 p.m.

Mr. David Knox: I would not normally seek to address the House twice in one week and I speak today, having done so on Monday, only because the demand to speak is obviously low. It is alarming that so little interest has been shown in this Bill, whch, no matter what view we take about it, we would all agree concerns large sums of money


and which should be the concern of the House. I hope that the hon. Member for Bristol, Central (Mr. Palmer) will not mind if I do not follow him into the details of the electricity industry; I should like to speak more generally.
The hon. Member for Cornwall, North (Mr. Pardoe), who naturally is no longer here, made a speech which was remarkable even by his standards. He said that he opposed helping people with concessionary bus fares and things of that sort. I should not have thought that recent by-elections were significant for the advocacy of such policies by the Liberal Party. He said that he was against general subsidies, yet later in his speech he said that he was in favour of general subsidies. He said that he was in favour of a statutory prices and incomes policy, but apparently with no controls or prohibitions, just tax adjustments. Why bother with the statutory policy in that case?
I am afraid that the hon. Member's speech was just another example of what we have had to put up with from the Liberal Party all along, of being all things to all men at every turn in every speech and almost in every sentence.

Mr. Wilfred Proudfoot: The hon. Member at one time said that he was against subsidies to particular groups on buses, yet before he finished he suggested that all bus services should be free.

Mr. Knox: I noticed that as well.
I give a guarded welcome to the Bill. I accept many of the reservations of my hon. Friends the Members for South Angus (Mr. Bruce-Gardyne) and Portsmouth, Langstone (Mr. Ian Lloyd). I understand the dangers of subsidising the nationalised industries as the Bill seeks to do and the distortions that are the inevitable consequence of such subsidisation. But though I have reservations about this sort of thing I am not against subsidising, as the Bill seeks to do, in all circumstances.
In our approach to these problems it is important that we adopt a non-doctrinaire attitude and try to deal with each situation on its merits. [Laughter.] Hon. Members of the Opposition may

laugh, but that is why I disagree as strongly with the free marketeers with as I do with the collectivism of the right hon. Member for Bristol, South-East (Mr. Benn).
The hon. Member for Newcastle-under-Lyme (Mr. Golding) may find that amusing. I suggest that my approach is a little nearer to the world in which we live than is the approach of others who take a doctrinaire attitude in this matter. It is sensible to be practical about the problems confronting us. Much of the abuse that is poured on the House of Commons today arises because the outside world looks at our debates and thinks that they are largely removed from reality. A middle-of-the-road, non-doctrinaire approach is far more realistic than the approach taken by some hon. Members, on both sides of the House. My hon. Friend the Member for Oswestry (Mr. Biffen) tends to take a doctrinaire view of these matters.

Mr. Biffen: Absolute rubbish!

Mr. Knox: My hon. Friend is entitled to his view, but it will not be shared throughout the House.
I give a general welcome to the Bill. It provides the practical means for implementing proposals about prices in nationalised industries which have already been approved by the House. As my right hon. Friend the Chief Secretary said, the Bill seeks to compensate the nationalised industries for their efforts at price restraint in the past and for the efforts that they will make in future. Such restraint is of particular importance to the Government's counter-inflation strategy and has been over the past three years. It will be of equal importance in the future.
It is right to emphasise the importance of the contribution of the nationalised industries to the Government's counter-inflation policy. It has been going on for some time. The nationalised industries have played a part since July 1971, as well as the contribution that they have made during the freeze and during stage 3. In July 1971 the CBI called on its members to restrain price increases to within 5 per cent. in the following twelve months. At the same time, the Government agreed that similar restraint should be practised by the nationalised industries. If the nationalised industries had not done


that, there is no doubt that the CBI initiative would not have been nearly as successful as it was.

Mr. Palmer: I hope that the hon. Gentleman has not overlooked the fact that most of the nationalised industries are members of the CBI.

Mr. Knox: Indeed, but the hon. Gentleman will appreciate that at the time the Government announced that the nationalised industries would also take this action. There would not have been the same response from the firms in the CBI had the Government not taken this attitude in respect of the nationalised industries, in part because of the example that the nationalised industries set, and in part because of the effect on their costs.
During the freeze and phase 2 the nationalised industries were treated as other industries were treated. Prices were first frozen and then subject to restraint. It is important to remember the extra contribution made by the nationalised industries during phase 2. The general provision in the code for phase 2, that prices could rise to safeguard investment, did not apply to the nationalised industries. We should remember that difference when considering the Bill. The nationalised industries will have to respond under phase 3 as well. They are subject again to strong price control, and it is right that that should be so.
I mention these points to show that the nationalised industries have been subjected, rightly, to the same rules—in some cases, rather stronger rules—as private industry during the past three years. This explains the necessity for the Bill now. In part it is to compensate some of the nationalised industries for the effect on their finances of price restraint during the past three years and in part it is to extend their borrowing powers.
Those nationalised industries which are benefiting under the Bill will not get everything that they want or feel that they deserve. For example, I understand that the electricity industry feels that price restraint has cost it about £165 million since 1970. But it will only get a little more than £90 million under the Bill. Whether the electricity industry is right is questionable, because its claim for £165 million does not take into account the

benefits which it has enjoyed by the price restraint exercised by its suppliers.
However, despite that, there is probably some truth in the industry's claim. I am not trying to argue that it should be getting all it has asked for or even more than the Government are offering. It is right that the industry should get rather less than it thinks it needs. This will exert pressure upon it to try to cut its costs to a minimum and to improve productivity by the use of better methods and processes. Such pressure is good for industry, whether nationalised or private.

Mr. Golding: Will the hon. Gentleman say how this will operate if the gap is filled by borrowing from the Treasury, which appears to be the case in each of the nationalised industries concerned?

Mr. Knox: I do not think that the particular gap about which I was talking will be represented by borrowing from the Treasury in the way that the hon. Gentleman has suggested. I was saying that the electricity industry has set a figure of £165 million as being the amount that it thought that price restraint had cost the industry. The Government intend to give the industry rather more than £90 million under the Bill. The right amount is questionable, and as the Economist pointed out last week:
The Government has rightly refused to enter into any argument.

Mr. Golding: Will the hon. Gentleman give way?

Mr. Knox: No. I have given way once to the hon. Gentleman.
I should like to make two general points in relation to the nationalised industries and the Government's counter-inflation strategy. It is beyond doubt that the price restraint that the nationalised industries have shown has played an important part in the Government's counter-inflation strategy and in holding down price increases in Britain. It is difficult for people to appreciate how successful the Government's counter-inflation policy has been when world prices have been rising as fast as they have in the past 12 months.
But the success of this policy can be seen when one remembers that import prices have risen by 37 per cent. in the past year, and that the effect of this on the domestic price level will eventually be


9 per cent. When one examines the figures—as the Economist did last week, and previously—it is reasonable to conclude that about two-thirds of price rises in Britain in the past year have been externally generated and only one-third have been internally generated. This shows the measure of the success of the Government's policy in controlling those prices which they can control. In that context, the price restraint of the nationalised industries has clearly played a part.
My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) questioned whether the Government's counter-inflation policy had worked at all. I quote the Economist, which a few weeks ago suggested that, but for this policy, prices would have risen by 20 per cent. in the past 12 months rather than 9½ per cent. It is therefore reasonable to submit that as part of the overall counter-inflationary strategy the contribution of the nationalised industries has been worth while.
This is important for a number of reasons. My right hon. Friend the Chief Secretary suggested that the price restraint exercised by the nationalised industries had held down the cost of living by 1 per cent. I should have thought that anything that held down the cost of living at all was worth while. I am sorry that the hon. Member for Heywood and Royton (Mr. Joel Barnett) does not agree with that.

Mr. Joel Barnett: I did not say that.

Mr. Knox: I apologise to the hon. Gentleman, but that is what his facial expression indicated.
My second general comment is that the Bill represents in practical terms a form of subsidisation to told prices down. It shows clearly that the Government have not adopted a doctrinaire position on subsidies. The Opposition and the TUC frequently demand subsidies of one sort or another. This is a good example of a subsidy that has worked effectively. It has brought benefits directly in respect of consumer expenditure, and it has restrained industrial costs, which would otherwise have had to be passed on to consumers.
I was saying that the Labour Party is frequently calling for food subsidies. The

cost of reducing the price of bread or of milk by 1p a pint or a loaf would be £200 million. That would not have a noticeable effect on the cost of living. Surely in terms of cost-of-living benefits those to be gained from the holding down of prices by nationalised industries, which led to this Bill are much greater than would be the benefits from a system of food subsidies. Not only that, the administrative task of doing it as the Bill seeks to do it is much easier than it would be if food subsidies were to be introduced.
I support the Bill in present circumstances. That does not mean that if a similar Bill were to be introduced in five, 10 or 15 years' time I would necessarily support it. It would all depend on the circumstances prevailing at the time. Politicians would serve themselves better if they attempted to approach these matters in a more empirical and less doctrinaire manner.

7.13 p.m.

Mr. David Stoddart: It was interesting to hear the hon. Member for Leek (Mr. Knox) being so non-doctrinaire. The hon. Gentleman's arguments in favour of public ownership have been noted on this side of the House. I can only express the hope that at the General Election the hon. Gentleman and his back-bench colleagues and Aims of Industry will remember this non-doctrinaire approach.

Mr. Knox: Will the hon. Gentleman give way?

Mr. Stoddart: It is a little early, is it not?

Mr. Knox: Would the hon. Gentleman care to tell me a single argument I advanced in favour of public ownership?

Mr. Stoddart: The hon. Gentleman put forward the main argument for public ownership, in that it enables the Government to have a control of the economy and control of prices. Without a large nationalised sector not only would it be impossible now, but it would have been impossible in previous financial crises, for the Government to deal with price control, price restraint or wage restraint, in any way. So the hon. Gentleman advanced the best possible argument for a large nationalised or publicly owned sector of industry. I am very glad that he advanced


it. It will be remembered and quoted in due time. It will be a piece of valuable propaganda, not for Aims of Industry but for Labour candidates when the next General Election comes, and I hope that will be soon.
The Government's whole policy now depends on the nationalised industries. Unless they were able to work through these industries to keep power prices down, and up to now to have kept steel prices down, their whole strategy on prices and incomes would have "gone for a Burton". The House should note that this policy has difficulties now for the nationalised industries and will have difficulties for them for the future. It is useless for the Chief Secretary to say that in due time there will be a return to normal commercial methods. I cannot see, nor can the Chairman of the Central Electricity Generating Board see, in the foreseeable future the remote possibility of returning to market prices for the commodity, because the blow to the consumer would be so hard and so vicious that no Government would find it politically possible to make that change.
Further, for the domestic consumer the change would be even more vicious. It is already the contention of the electricity industry that domestic consumers, even before any freeze, were paying 15 per cent. below the market price of the commodity—that is, electricity. So the Chief Secretary and his colleagues will have to think this one out and work out a long-term strategy for pricing in the nationalised industries, because it will be a long time yet before they can return to normal commercial operations.
The Chief Secretary rightly mentioned the question of morale in the nationalised industries as a result of their having to receive deficiency payments from the Government, because they have been prevented from acting on a commercial basis. The right hon. Gentleman said that there was a decline in the morale of management. I should like him to know that the morale in the electricity supply industry affects not only management. It affects every worker in the industry, as it has affected every worker in the industry ever since the Government started using the nationalised industries as an instrument of their own policies.
While the Government have done this they have ensured that workers in the industry have been treated as second-class people; and as a result over a period their comparability in wages and conditions of service with outside industries has fallen. That is why there has been a reduction of morale which is continuing and which will persist unless Governments recognise that people in these industries are entitled to comparability.
Many people think that those in the nationalised industries are cosseted and do not work hard. I immediately declare an interest in that I am a member of the Electrical, Electronic and Telecommunication and Plumbing Trades Union and a former worker in the industry. As such, I know full well that those working in these industries are efficient and conscientious but unfortunately under-privileged and under-paid. This cannot be allowed to continue. We had a debate earlier this week about the results of this policy in London, where the services are breaking down as all of us who travel in London know. This situation cannot be allowed to continue. We must return to the situation which prevailed before the war, when people employed in the publicly-owned industries were among the best paid and the best treated employees in the country.
The situation has now turned around and, far from being the best paid and the best treated, they are almost always the worst paid and the worst treated. We must get back to the situation where the publicly-owned industries are leading the way on wages and conditions of service, and are not following private industry. I hope that the Chief Secretary and the Government will take note of what I have said, because the whole future of our public services depends upon a recognition of this central fact. Until it is recognised, the people in the nationalised industries will not be giving of their best and their morale will continue to decline.
It was said earlier in the debate that there is a fear that deficiency payments will mean too much interference with the nationalised industries, and for day-to-day management that is a reasonable doctrine. But I do not think that the nationalised industries should be able to lead the way on central energy policies.


It is not right to allow an industry, particularly the electricity industry, to dictate energy policy. I fear that that is what the Central Electricity Generating Board has been trying to do over a period of time, and that is dangerous because our energy policy is vital to the continued expansion and economic well-being of this nation. We cannot allow the chairman of the C.E.G.B. to use too much influence in regard to the sort of fuel which he will use to generate electricity.
I should like to quote from the interesting speech which the chairman made on 5th July. He said:
Our view is this. While recognising that energy problems in the future may push up fuel prices faster than prices in general, the board does not accept that current problems have reached crisis proportions or that worldwide fuel famine is inevitable. Certainly there is no crisis in Britain now. More coal is being produced than can be sold without Government subsidy, and more residual fuel oil than the board requires can be bought at competitive prices. For the immediate future Britain, unlike the United States of America and other major industrial countries, is on the threshold of a period when the production of oil from British offshore resources will grow faster than oil consumption. Beyond that time, nuclear power can make massive contributions to future energy supplies. The broad picture for Great Britain is far better than alarmists make out and will remain so if we husband our resources properly.
That is what he said on 5th July. I should very much like to know what he says today. That is an indication of the fact that what we need in this country is a fuel policy under the control of an energy commission, which will ensure that we husband our resources and use the best fuels for each energy requirement.
Before very long, we shall find, as my right hon. Friend the Member for Bristol, South-East (Mr. Benn) said, that we are borrowing money from Europe to buy a light water reactor from the United States of America. That would be a futile policy and possibly even a dangerous one. Far from not interfering, I believe that the Government should be interfering to a very great degree, because it is vital to the safety of our people and to our future balance of payments that the right decisions are taken in relation to our future nuclear power programme.
I support this Bill and, like my hon. Friends, I shall not vote against it. But

it is ironic that we should have here a Bill which will push £400 million into the nationalised industries and permit them to borrow further sums from abroad, because both courses will ensure that the deficits, both on overseas account and on domestic account, will grow. It is also ironic that the party which, over a long period of time, has accused my own party of financial profligacy, should be the most profligate party that has ever ruled this country.
Furthermore, it is ironic that the Conservative Party should embark upon a financial rake's progress, while the Labour Party is the paragon of financial rectitude, the party which balanced our internal and external accounts. What U-turns there have been! But in spite of the mistakes and failures of the Conservative Party, I accept what the Chief Secretary said in opening—that he is a sinner who has repented, and because he has repented I shall support him tonight.

7.28 p.m.

Mr. John Biffen: A short intervention in debate on Second Reading of a Bill is, I understand, the minimum fee which one pays for selection to the Standing Committee on the Bill, and it is in that spirit that I make the briefest of contributions.
To be quite open and honest, I have a pressing engagement to see the Chinesse exhibition at the Royal Academy, and I had not imagined that the great ideological divide that opened on account of the Liberal Party's concern over this measure would result in there being a vote this evening. I apologise in advance to the Chief Whip for the fact that I was not able to anticipate the political behaviour of the Liberal Party—an eccentricity which has been underlined by its total absence since the shattering thunderbolts were fired by the hon. Member for Cornwall, North (Mr. Pardoe) a short while ago.
The House should at least reflect that the very genesis of this policy was the policy statement of my right hon. Friend the Chancellor of the Exchequer on 19th July 1971, but neither on that occasion when he was questioned by the Leader of the Liberal Party, nor on the following day when there was a speech by the hon. Member for Cornwall, North did one have the slightest inkling that there was the great difference between the Liberal


Party and the other two major parties, which were locked in consensus. Indeed, if one goes back to the debate of 20th July 1971 one cannot but note that the anxieties expressed about the implications for the financing of the nationalised industries came from those such as the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and my hon. Friends the Members for Horsham (Mr. Hordern) and South Angus (Mr. Bruce-Gardyne). They were not anxieties which were particularly evident elsewhere during that debate. Yet the anxieties which were then expressed have been seen to have a fairly unhappy nemesis in the legislation which we are now considering.
My right hon. and hon. Friends on the Treasury Bench have not addressed themselves to this topic with any degree of obvious enthusiasm or ideological commitment. I think they will be very happy if at some future date we can so contrive our affairs that this sort of legislation will not have to be brought before the House, and, indeed, they will proceed under the apprehension that next time they will not get the support of my hon. Friend the Member for Leek (Mr. Knox).
The reason for my reservations over this particular form of subsidisation is basically that I do not think we have done any of the measurements which really ought to be prerequisite before one engages in subsidy on this massive scale. I do not think that as we the more understand the pattern of the expenditure of old people we shall be deflected from recognising that there are areas where one will subsidise the product as well as the person. For many elderly people—I am thinking above all of housing and the adjustment of expenditure on rates—it is difficult to adjust expenditure in the same way as those in the prime and zenith of their earning power. Therefore, I am not with a closed mind on the idea that in heating, transport and various other commodities one may have a subsidy which is identified with an age group. I will leave it with a question mark. I wish to acquit myself of the charge of being doctrinaire.
That which bulks largest in this legislation is that in electricity supply we have what is probably a situation in which the industrial consumer is subsidising the domestic consumer. This point was touched on by the hon. Member for

Bristol, Central (Mr. Palmer). I happen not to share the views of some hon. Members about the pre-eminent virtues of membership of the European Community, but I can well appreciate the anxiety of many major industrialists who are in high-energy consumption activities, like chemicals and aluminium smelting, that there should not be, from hidden subsidies, too obvious distortions of competition. Many people in manufacturing industry believe that they are at a disadvantage compared with their continental competitors because of the extent to which they have to cross-subsidise domestic consumption.
Secondly, I am anxious about the nature of the growth in electricity. Just what is being subsidised? The hon. Member for Bristol, Central concluded his speech by calling in aid social justice, which is a fairly good thing to call in aid to defend almost any policy at any time. It is one perpetual U turn. Anything can be argued in the context of social justice. What is the direction in which the additional expenditure on energy and electricity proceeds?
I have a suspicion—and it has been referred to by at least one hon. Member opposite—that the additional expenditure upon electricity is very much a factor of recreation and leisure, and particularly the growing acquisition by an enlarging section of the community of middle-class standards of spending. I should like to know very much more about the breakdown of energy consumption. I do not think that the idea that the domestic use of electricity can be equated with the basic necessities of life, such as heating and lighting, truly reflects the situation in the growing amount of electricity consumption. I suspect that it is much more related to the sophistication of a great deal of modern life and related precisely to leisure and recreation. I think that my hon. Friends will have to address themselves to a much more refined analysis of why subsidies on this scale are being carried out in these particular commodities.
I for one am prepared in all charity to see the Bill receive its Second Reading, on the understanding, of course, that what has already been spent is beyond recall, and I suppose that at a stroke the books will be balanced, but for the future, for the £400 million, rising £500 million, in


Clause 2, I hope that that will be the subject of a much more detailed explanation and a much more convincing social and economic balance sheet than has so far been presented.

7.36 p.m.

Mr. Robert C. Brown: Although it does not say so specifically, Clause 1 recognises that over the past three years the Government have used the nationalised industries as a main arm of their counter-inflation policy—a course of action that has led to a serious financial and economic distortion in the publicly-owned industries. In recognition of these problems, created deliberately by the Government, they have agreed in Clause 1 to pay about £146 million to three nationalised industries—gas, electricity and the Post Office—to compensate them—I emphasise, to compensate them—for price restraint over the past three years, and not, as the hon. Member for Leek (Mr. Knox) says, to subsidise them. There is no question at all of the publicly-owned industries being subsidised by the Bill. The compensation payments are the direct result of Government policy which has encumbered the publicly-owned industries during their period of office.
The connection between pricing policy, investment financing and the projected rates of growth of the fuel industries has to be emphasised. In the case of the gas industry, a very high rate of growth—the demand for gas increased by 80 per cent. between 1971 and 1972—has been largely induced by low prices. At the same time, investment has been financed not through prices, by the consumer, but by the taxpayer via loan finance from the Government.
Self-financing has been desperately low in the gas industry in recent years. It was below 30 per cent. in 1969–70 and 1970–71. The position has been further exacerbated by the Government's counter-inflation policies of last year and this year which prevented price rises. The effect on the other parts of the energy sector of the abnormally high expansion rate for natural gas and the falling revenue per therm has been a distortion of demand, a distortion which can be cured only by a policy which includes the increase of prices in order to slow down the rate of growth of consumption.
Further, that distortion has a devastating effect in localities where there is talk of conversion to natural gas. The Northern Board area hardly knows where it is going from year to year because of the prevailing investment policy. In the electricity industry an imbalance between industrial and domestic consumption prevails. It appears to be self-aggravating with domestic charges about 25 per cent. too low by normal commercial standards.
Such prices are stimulating demand for electricity at a time when the more consumption rises, the more money the industry loses. It is farcical that any industry should be put into a situation in which it is hoist by its own petard as sales rise. That is at a time when there is general concern about the so-called energy shortage.
Domestic rather than industrial tariffs are now the greatest problem. The Government have acted much more vigorously—I understand this—to hold down proposed price increases for domestic consumption. We all know that when we talk about price increases affecting householders there are political difficulties. If there are four by-elections looming ahead, the Government of the day are not inclined to allow electricity boards to impose price increases on householders. The charges paid by industry are linked, as my hon. Friend the Member for Bristol, Central (Mr. Palmer) mentioned, to the rising cost of fuel burnt in power stations. Domestic charges are not so linked.
Matters started to go seriously wrong in the electricity industry in the 1970s as a result of a 20 per cent. increase in coal prices. We must bear in mind that coal accounts for 70 per cent. of the fuel used by the CEGB in the production of electricity. A 12 per cent. price increase in electricity, which was then demanded by the board, was delayed until April 1971. By that time the cost of coal had increased by a further 8 per cent. Following a series of similar lags in 1972 and 1973, the Price Commission allowed average charges to increase by 4½ per cent. in October of this year. That is about 3 per cent. less than was desired. The result is that the distortion of domestic charges has been further perpetuated.
Although the industry is now to receive more than £100 million in compensation for previous price restraint, taking


England, Scotland and Wales together, that will not nearly match the loss of revenue, nor restore the reasonable return on investment to which the industry is entitled.
What is the result of such a pricing policy, or the restriction of a fair pricing policy, for the public industries, for the members of my union? I declare my interest as a sponsored Member of the General and Municipal Workers Union, which organises the majority of the labour in the gas industry and which is the second largest union in the electricity industry. The workers in the publicly-owned industries have had the rawest of raw deals in recent years. No one likes to be the subject of music hall jokes. If people do not believe that, let them ask their mother-in-law.
The Mike Yarwoods of this world, when they are not talking about Ted or Harold, are having a go as the workers in publicly-owned industries. They say that they cannot stand on their own feet. They refer to the need for deficiency payments from the Government to bail them out year by year.
Nobody likes to work in an industry alleged to be unable to pay its way. But those are not the facts. It grieves me as an individual who worked for 30 years in the private gas industry and then in the publicly-owned gas industry to see a situation which causes morale to suffer severely. That is a direct result of the nationalised industries being lambasted by Conservative Members for not being commercial when the Government do not permit them to be so.
It is high time for the Government, of whatever political complexion, to be fair and straight and to let the people know that if the nationalised industries are to be judged commercially, they must be allowed to act commercially. There is no question of the nationalised industries being subsidised. The success of the nationalised gas and electricity industries has been tremendous. I am sure that my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) will have something similar to say about the Post Office. The gas and electricity industries are a tremendous success story. As my hon. Friend the Member for Bistol, Central said, it took a Tory Government to put the Central Electricity Generating

Board into the red for the first time since it came into public ownership. This is not a record which should make any worker ashamed.
However, the facts are not getting across to the country because of the Government's gross interference in present pricing policies. It is interesting to note that while across the board prices of the nationalised industries, including gas and electricity, have increased by 17 per cent., prices in private industry have increased by 30 per cent. That is a corollary on the rewards that the workers are obtaining.
A member of my union would argue fairly that because of the restriction on the nationalised boards by the Government of the day in allowing only small price increases, the result is that the workers in private industry have had wage increases linked to a 30 per cent. increase in prices against a wage increase in the public sector linked to a 17 per cent. increase in prices.
The fact is that no workers have been more co-operative in the operation of productivity schemes than the gas and electricity workers. It is a crying shame and a scandal that we should not allow workers who have co-operated to the full to get their fair returns for their labour because of this damnable pricing policy.

7.48 p.m.

Mr. Wilfred Proudfoot: On looking round the House and looking in the Bill to see who sponsored it, I am rather surprised not to see Professor C. Northcote Parkinson's name on it. Here we are spending £645 million and yet the emptiness of the House gives the impression that we are on an Adjournment debate.
Throughout the debate I have looked whether any Scottish hon. Members have come into the Chamber. At long last I spy one on the Treasury Bench. As I look in Schedule 1, I am delighted to note that the Scottish nationalised industries are the only ones which work to the nearest thousands pounds. I am glad to see that the North of Scotland Hydro-Electric Board and the ordinary electricity board both still work to the pound in detailing their losses. Perhaps some of the arguments we are always hearing are too much London based.
I have listened most carefully to the debate. The hon. Member for Swindon (Mr. David Stoddart) and the hon. Member for Newcastle-upon-Tyne, West (Mr. Robert C. Brown) talked with a great deal of sincerity and feeling about some of the nationalised industries. Indeed, the hon. Member for Newcastle-upon-Tyne, West worked in the privately-owned gas industry. Both hon. Members remarked on how difficult it was for people in nationalised industries to keep up with the private enterprise sector.
It takes the wind out of my sails when I recall that the Opposition, at their party conference a few weeks ago, wanted to nationalise more industries. At the next conference, hon. Members opposite should be saying the same kind of thing they have been saying today here—that nationalised industry means that the workers in it get a raw deal. I do not know how the Opposition are going to sell the idea of nationalising more industries if the workers in them are to get a raw deal.

Mr. Golding: The issue is that since June 1970 the workers in our nationalised industries have had a raw deal. Between 1964 and 1970, there were very large increases for some of those working in the nationalised industries.

Mr. Proudfoot: The hon. Gentleman should tell that to the miners. He should recall the figures bandied about earlier this week. The increase in pay to the miners during the six years of the Labour Government was very much smaller than the increase since.
The hon. Member for Bristol, Central (Mr. Palmer) and I have twice fought each other for Cleveland. I defeated him and then I was defeated. For a moment tonight, I was almost sorry that I had defeated him because he proved that he was not a doctrinaire Socialist. He said that the nationalised industries should charge what the market would bear. I agree that that should be the normal situation. But immediately one says that, the responsibility of this House—because these industries are monopolies—is to ensure that they do not over-man. But most of them are totally without the play of market forces. That is where the hon. Gentleman's argument falls down.
I give the example of a branch line of the railways that I know. Everyone knows

only the branch line nearest to him. If the railways charged what the market would bear on the line from Scarborough to York, and if the subsidy were taken away from it, it would be cheaper for people to go by taxi.
When my right hon. Friend the Chief Secretary to the Treasury was moving the Second Reading of the Bill, I was sorry for him. I would hate to be a Tory Minister introducing this kind of Bill. But I suppose it is one of the dirty jobs which land in Ministers' laps from time to time, and I am glad that it was obvious that he disliked doing it.
The hon. Member for Bristol, Central said that there was no similarity between the nationalised industries and the private sector. I think that he is wrong. Nationalised industries exist to create goods and services for the public, and so does the private sector. He took British Railways as an example and compared it with ICI. I cannot imagine why, and I must assume that he picked it out at random. The fact is that ICI has no monopoly, whereas British Railways has a monopoly. But it has had to undergo an incredible change in the people's taste in transport. It has been a very slow change. It has not happened overnight. I remind him that private enterprise cinemas have had to cope with television and that many of them have had to close as a result. He cannot single out British Railways as having circumstances with which no one else has had to cope. Both the public and the private sectors are there to carry out the same kind of function—the provision of goods and services for the pople.
There is a certain belief in the country—sometimes one reads about it in the Financial Times—that we are bound to have a public sector and that nearly every other private enterprise country will have an increasingly large public sector. It has even been said that if we had not had a public sector of the present size we could not have had a prices and incomes policy. That is just not so. We were accused of attempting stages 1, 2 and 3 because the United States has done it. The United States has very little nationalised industry, but I believe that it is now on stage 4. There is nothing in that argument.
We have also had the intellectual argument that we can control the ravages of capitalism only by having a large nationalised sector. I do not accept that either. A method is already emerging on this side of the House for the control of private enterprise business. It is called "monopoly competition". We passed an Act in the last Session to make sure that there is competition within the private sector. Indeed, we are to have yet another Bill to control pollution.
Therefore, when considering the argument about the nationalised industries, one is forced to conclude that nationalisation has nothing to offer the country and is an outdated system of management. By admission of the Opposition, nationalised industries pay less than private enterprise pays to its workers. Nationalisation is totally out of context in this modern world, and our entry into the EEC has only made it more obvious.
The Opposition accuse us of making U-turns, and I accept that accusation completely. I warn them that there will be more U-turns. We shall turn a complete circle on this issue.

Mr. Walter Johnson: The Government have done it already.

Mr. Proudfoot: Not yet. This is only a temporary effort to try to stop inflation. I believe that our method so far has met with far more success than did the first effort. I am not too sure that subsidies to nationalised industries help to control inflation, but they were a sweetener to the CBI and private enterprise for their limitation to 5 per cent. price rises. I look forward to turning a complete circle and getting back to the free market economy, letting people charge what the market will bear and letting the trade unions get back to free bargaining. I hope that we shall be back there in nine months' time, when world commodity prices start to fall and we have the levelling off of prices here.
The hon. Member for Cornwall, North (Mr. Pardoe) said that we should have yardsticks for the nationalised industries. I agree, but there is one important yardstick that it is impossible to have in a monopoly situation. This is that there is no comparison for the customer because he has no choice. I suppose that

now that the Liberals have 11 Members they have to start to make sense, to sound like a real party and to have a platform to speak from, but the hon. Member horrified me when he said that he expected that the railways and the postal services would always be subsidised. I cannot go along with that. I hope that it will not be so. I believe that the railways will eventually get to the right size and that people will discover the delights of travel by the advanced passenger train. I do not think they will be travelling on branch lines much longer but the main lines will still exist and do good business. I am shocked that the Liberal Party should think that nationalised industries will be subsidised for ever.

Mr. Joseph Harper: The hon. Gentleman's philosophy is that the sooner the railways are cut down the better for all. All the Tories I have listened to want the railways cut down, but as soon as railway lines in their own constituencies are threatened with obliteration they squeal like scalded pigs.

Mr. Proudfoot: I am glad the hon. Gentleman mentioned that. My constituency is in the middle of industrial Yorkshire and has not one railway station. I was there 18 months before I saw a train there. One factory out of 440 has railway sidings but I believe that they are now defunct. The last two cinemas in my constituency closed two years ago. All this has nothing to do with nationalisation. It merely shows that times change.
I assure the hon. Gentleman that I have never defended the continuation of a branch line which should be closed. When I was the Member for Cleveland, I even went on the radio and pitched in about the closure of the line between Middlesbrough and Whitby. I believed that it had no economic significance.

Mr. Alexander Wilson: I hope that the hon. Gentleman realises that the closure of branch lines in rural areas throws a tremendous economic burden on the taxpayer and on the ratepayer. From time immemorial, even in Mr. Churchill's earlier days, British railways were subsidised in one way or another, even when there were several companies. The Government now have a duty to provide for an integrated transport system which would make better use


of the railways, enabling us to take juggernauts off the roads and save expense on the roads. Does not the hon. Gentleman agree with that?

Mr. Proudfoot: Not a bit. I hate the idea of subsidising anything. In the next few weeks, the hon. Gentleman will have a complete answer to what he has just said. The Government will bring in that answer by their road traffic Bill, by which we shall liberalise the law on the licencing of buses. It should have been done years ago, even 20 years ago, when the need became obvious. At one time, the problem was concerned mainly with rural buses, but now it is more a question of suburban buses. My constituency, for example, is in a mess with its bus services. I hope that the new Bill—I volunteer to go on the Committee—will tackle the business of mini-buses or maxi-taxis, salving the problem in that way, and bring to the people the good service which the present bus operators and branch railway lines cannot achieve.
As long as there are nationalised industries, Governments will tinker with them. As politicians, we are in this business only because we are busybodies. In my view, able management should have an element of laziness in it, but the House of Commons is not full of lazy people; it is full of activists. So long as there are levers of power to be pulled, Governments will jump to and pull them.
This is what astonishes me about the Labour Opposition. They want more nationalisation and more control, making it possible, they say, to control the economy by that means, although they admit that by more control of the industries they will have more control over the men working in them. It just does not match up to their call for free collective bargaining to be restored.

8.2 p.m.

Mr. John Golding: At one time, the Post Office was described by those who worked in it as the milch cow of the Treasury. Its workers resented the way in which large postal profits were taken from their service. Today, there is even more resentment at the fact that the Post Office has now to be compensated, at least partially compensated, for being the mulch cow of private industry.
Last year, the lost revenue due to price restraint was £140 million. Is it any wonder that the Post Office suffered an overall loss, its first since 1956–57, of £64·1 million? In the previous five years, profit had equalled £35·3 million a year, Telecommunications, which had showed an average profit of £60 million a year, recorded a deficit of £9·7 million.
The Bill compensates the Post Office for that £9·7 million. As I understand it—perhaps the Minister will confirm this—it does not provide justifiable compensation for postal losses additional to that provided in last Session's Post Office (Borrowing) Act. Nor does it come near meeting the true loss suffered by the Post Office as a result of price restraint.
Before developing that point, however, let me say, as an official of the Post Office Engineering Union, that I appreciate that the Post Office has to conform to national pricing policies and make a contribution to increasing productivity. It has done so more successfully than most. The annual report for 1972–73 shows that there were productivity savings of 6,500 engineers, 1,600 clerical staff and 120 telephonists. Moreover, as the Post Office Users' National Council commented in its eighth report,
this was not an isolated year.
Engineering productivity alone has increased by 6·1 per cent. a year since 1964. If private industry had achieved that, Britain would be on top of the world.
The Users' National Council has shown also that telecommunications prices have risen far more slowly than have retail prices generally. This year, telegram prices have risen by 9 per cent. for business and 2 per cent. for residential subscribers. Few consumer services will have risen by so little. Not since 1964 have telecommunications charges risen more in a year than prices generally, and in four of the past 10 years prices actually fell.
I am pleased that my right hon. Friend the Member for Bristol, South-East (Mr. Benn) is in the Chamber. I am glad to point out what happened during his period of office as Postmaster-General. The price of telecommunications was less when he left office than it was when he took the post over from Reginald Bevins. Moreover, he did that while at the same


time making an average profit each year of about £38 million. My right hon. Friend had an excellent record as Postmaster-General.
Since 1964, up to the last financial year, retail prices have risen by 54 per cent., while telecommunications tarrifs have risen by only 18½ per cent. Thus, retail prices have risen almost three times as fast as telecommunications tarrifs have. It is clear that the telecommunications division has more than played its part in keeping down prices and increasing productivity.
The argument, then, is not about whether the Post Office should make such a contribution—it already does—but about its size. However, because its contribution has been so much greater than that of firms in private ownership, great difficulties have arisen. We have not yet received the report of the Select Committee on Nationalised Industries which deals with this question, but I hope that Ministers will study it with care when it emerges. In its absence, I shall speak from my own experience and that of the Post Office.
There can be no doubt that present policies are making it difficult for the management of the Post Office to plan. Although the Post Office board has not been noted for its outspokenness—having pussy-footed on the issue of Post Office manufacture and cable development over the past two or three years—it has spoken up bravely on the subject of pay and difficulties of planning.
I quote here from its annual report:
In these circumstances, financial targets agreed with the Government become unattainable. For example, the telecommunications return on capital for the year was 6·9 per cent. as against a target for the year of 10 per cent. There is a serious danger that financial disciplines will slacken and soften, and great determination will be needed to prevent this happening. If pricing limitations persist for much longer, the consequences for the Post Office will become even more serious and more difficult to put right, because customers will become used to subsidised prices. Indeed under-pricing could seriously endanger the prospect of ultimate recovery, with heavy losses becoming a continuing feature of Post Office affairs. Compensation, whether in write-off or other forms, helps to bridge gaps in the short term but leaves the basic problem untouched. These issues must be tackled sooner rather than later if the Post Office is to be effectively and efficiently led and managed, giving good value for money and serving properly the industrial, commercial

and social needs of the country. The Post Office hopes that special consideration will be given to its pricing requirements as counter-inflation policies develop.
Indeed, at the moment the Post Office has no target at all.
The concern of management is shared by the staff. The general secretary of the Post Office Engineering Union, Bryan Stanley, made a powerful plea to the Labour Party not to be led along the path of unnecessarily restricting prices in the nationalised industries. We in our union believe that these policies lead to a lowering of morale throughout the service. Reports of deficits are seized upon by Tory front rank organisations such as the Aims of Industry and presented as proof of inefficiency. Industries such as telecommunications, electricity and gas—with productivity records that completely outstrip private industry—are vilified by men who themselves have both exploited and failed the nation. The only thing in which they excel is the art of political propaganda.
I am pleased to see in his place the hon. Member for Cornwall, North (Mr. Pardoe), because I believe that the Liberal amendment, not selected for debate, sadly reflects on the nationalised industries since the Liberals' view is that they do not wish to give the Bill a Second Reading since it
does nothing to promote their long term efficiency.
I have already stated the great increases in productivity which have occurred in the Post Office. We believe that the only major inefficiencies in the Post Office stem from the staff shortages created by the Government's unfair treatment of many grades of Post Office staff.
Morale is not improved by the vast sums being paid out as interest on borrowing. Between 1969–70 and 1972–73 the amount of interest paid has increased from £97·6 million to £165·2 million. This is due not only to the collossal rise in interest rates and the physical growth of investment, but to a fall in the degree of self-financing. The Post Office is having to borrow money from the Treasury and from Europe for investment which it ought to have got from its customers. This is "dead money" in terms of the Post Office. The Post Office should not have borrowed it and should certainly not have had to


pay an extortionate amount for it to the very Treasury which created the need to borrow in the first place.
Investment in telecommunications is vital to the nation's economic growth. The Chancellor's £30 million cut earlier this year was a stupid gesture. We must not go back to the stop-go of the late 1950s and early 1960s. We are still suffering from that policy. If it is no more expensive to the Post Office—and I am assured that it is not—to borrow in Europe, by all means let it do so. I have no objection whatever to going to Europe to borrow. I would rather borrow in Europe from a Community institution than borrow in the City of London or raise money on the open market. But let us first try to reduce the amount of borrowing needed in the first place.
I have argued that we should be getting more from the customer in future. But I must also say that the provision for compensation in the Bill is inadequate to pay for the damage caused in the past. I am indebted to Derek Bourn of the POEU research department for some interesting calculations. He has discovered that had the telecommunications business been allowed to achieve its 10 per cent. target, it would have received about an extra £100 million. To have financed as much of our investment from income as we did in 1969–70 would take approximately an additional £80 million. Against these figures of £80 million to £100 million, the £9·7 million granted in the Bill is put in perspective, and in a phrase "it ain't enough."
I have looked so far at these policies from the point of view of those who manage or work in the Post Office, but we must also look at expenditure on a wider front. The pegging of Post Office prices has led to the subsidising of private firms. In some cases this is good, but in others it is not so good. In my view, speaking as a small punter, there can be no justification, to take just one example, for the subsidisation of gambling. Neither does it make sense to pay compensation to an expanding telecommunications system and to end subsidies on food. I cannot fathom why my bet with the pools or with a bookie should be subsidised and why my bacon and eggs should not.
But that is the weakness of the present Government. Having abandoned rules they believe in and understand, they are now trying to govern by rules they neither truly believe in nor understand. Like many other hon. Members, I cannot see why taxation should be used for this purpose. There are so many other needs. Telecommunications, like gas and electricity, is an industry which can pay its own way, and Governments should let it do so. They should not treat the industry as the milch-cow of private profit-making.

8.18 p.m.

Mr. Joseph Harper: I intervene briefly since I see in the Explanatory and Financial Memorandum to the Bill that this legislation is being brought in to cope with
losses occasioned by compliance with policies of price restraint in the financial years 1970–71, 1971–72 and 1972–73. The amounts are based on deficits incurred during those years.
In other words, during the period of office of the Conservative Government. This legislation does not give anything at all to the nationalised industries. It merely makes good the losses caused by Conservative policies. Since this legislation can be said to be vitally necessary in the present circumstances, we shall not vote against it. I merely say that we shall possibly seek to strengthen it in Committee.
The people of this country become a little bewildered when they hear about these matters in news broadcast on radio and television and read reports in such newspapers as are being printed. The hon. Member for Brighouse and Spenborough (Mr. Proudfoot) said that he would not like to be in the shoes of a Tory Minister introducing this Bill. I think that perhaps he spoke with his tongue in his cheek and that he did not mean that at all. What he really meant was that it was not Tory philosophy to bail out the nationalised industries. This is a proposition which concerns Opposition Members more than it does Government supporters. The people will be bewildered. They will be saying, "We are having to bail out the Post Office and the electricity industry. We have already had to bail out the National Coal Board. It is all wrong." In the time at my disposal I shall seek to drive home that point.
Paragraph 3 of the Explanatory and Financial Memorandum says that the responsible Ministers are to be empowered, with the consent of the Treasury—which is always important—to make further payments to the same bodies for any losses which accrue in 1973–74 and 1974–75. I am pleased about that. No one can be sure what will happen in the coming two years, especially in view of the oil shortage.
I hope that a lot more coal will be burned, assuming that it is there to be burned, and that in so doing the electricity industry will be faced with deficits on it in the immediate future.

Mr. Alexander Wilson: My hon. Friend talks about more coal needing to be burned. I am sure that he realises that we must first get the coal. In present circumstances, when coal production has been increasing month by month, but when the National Union of Mineworkers has warned the Government that unless they pay the miners the wages they deserve to go into the bowels of the earth to dig the coal, production will not go on increasing, and with a loss of manpower currently running at 600 per week, we shall not have the necessary energy in terms of coal that we hope for.

Mr. Harper: I could not agree more. However, I think that my hon. Friend would be better advised to make that point in Monday's debate on energy policy.
Last year's Coal Industry Act made provision for reimbursing or subsidising the electricity industry to encourage to burn more coal. I am pleased that this is embodied in the measure that we are discussing tonight, because I have the feeling that it will be used.
In addition, what we ought to be debating is the way in which we should run our nationalised industries. No one seems to have the foggiest idea. I do not blame any Government for that, but I remember how, shortly after the war, when the mines were nationalised, on 1st January 1947, what happened was that for about 10 years the price of coal was pegged. At that time we had a monopoly: there were no other fuels. If we had adopted Tory philosophy there would have been thousands of millions of hounds in the coffers of the National Coal Board. Instead, coal was pegged to a

certain price. It was right of the Labour Government of the day to adopt that policy because the country's economy after the war was built on cheap coal.
During the early 1950's we saw the results of someone trying to plan and to tell the coal industry that the country would need 250 million tons of coal. On this figure of 250 million tons, money was borrowed at high rates of interest for capital investment. It was discovered then that we did not need 250 million tons of coal after all. As a result the money was wasted. It represented a heavy drag on the finances of the coal industry and interest had to be paid on it.
A few years after that a Tory Government had the bright idea of bringing out a White Paper on financial obligations. According to that, everyone was supposed to pay a return on capital of 12·2 per cent., except the Post Office, which was about 8·1 per cent. I could never understand why the coal industry should be expected to pay a return like that on capital which it had spent on machinery that was then redundant because we did not want the coal. That was the predicament of the coal industry for a number of years.
Ultimately, a Labour Government was elected again and one of my right hon. Friends introduced in 1965 a measure under which £415 million was wiped off the industry's capital debt. A similar measure was introduced under this Government a little over 12 months ago. This is all very well. We in this House know that those are the proper financial considerations to apply in the circumstances. However, the people outside do not know. They are educated to believe that nationalisation is a flop. Nothing could be further from the truth.
That is why we are here tonight debating this legislation. However, we are no nearer to a solution. Are we to pay out money to subsidise our national undertakings from time to time or are we to tell them that they must make themselves pay and charge proper prices? The sooner we get down to considering that question seriously, the better.
I am sorry to say that we in the coal industry missed the boat, though it seems to be coming our way again, and people cannot be blamed for taking advantage


of the opportunity that they see. If we had been able to take advantage of the situation between 1947 and 1957 there would have been no need for the £415 million wipe off, and no need for the Tory Government to wipe off another £1,000 million about a year ago.
I hope that we shall see to it now that our nationalised industries are a success. After all, they cannot be run under private enterprise. Our basic industries are bound to be under public ownership if they are to give a proper return to the people working in them and to the consumer, whom most of us seem to forget at times.

8.23 p.m.

Mr. Joel Barnett: I begin by saying how sorry I was to hear of the death of Gerald Nabarro. I am sure that those who knew him well will agree that he was in essence a kind man. He will be missed in our debates.
By deficit financing, this Bill in effect gives subsidies to the consumers of electricity and gas and the customers of the Post Office. It was introduced by a Chief Secretary who did not feel altogether proud of the baby that he had produced. I cannot help feeling that the job would have been better done by the hon. Member for Leek (Mr. Knox) who at least appeared to believe in it.
The Bill makes provision for deficit financing to the tune of some £645 million in due course. But, as my right hon. Friend the Member for Bristol, South-East (Mr. Benn) made clear, the figure is much higher than that. I assume that one of the reasons the Government are making grants of this kind on a deficit basis is to keep the figure lower and then make payments for investment at a later stage. We sometimes forget that we are discussing not only the money mentioned by my right hon. Friend the Member for Bristol, South-East which was paid to Rolls-Royce, Concorde, UCS, ICL and many other projects. For a Government who are ideologically opposed to subsidies they are doing very well. Although the Chief Secretary could not bring himself to use the word "subsidy" he should be complimented on his presentation of the Bill. It also pushes the boards to borrow on the foreign markets.
I shall try very hard not to be controversial. However, it is only too easy to quote from past speeches. I hope to refrain from doing so this evening. It would not be unfair to remind the Chief Secretary of what he and his hon. Friends said between 1964 and 1970 in condemnation of the kind of measures now before us. It is easy to understand why some of my hon. Friends feel a little bitter about the present situation. However, I shall let that matter go and say at once that I support the Bill and will not vote against it as the Liberal Party is apparently proposing to do. However, I hope that a member of the Liberal Party will be in Committee with us to vote for amendments that we might put down. We shall see whether that happens.
I found it most odd that the Liberal Party should now apparently oppose subsidies and prefer higher incomes. I must have missed a point somewhere but I always thought that the Liberal Party had supported a statutory incomes policy. Perhaps I had better check on that—

Mr. Pardoe: We did and we shall in future.

Mr. Barnett: I was sure that it did and no doubt the Minister of State will deal with the matter at length, but it is hardly worth bothering about.
Although I am prepared to support the Bill because it is essential to subsidise certain prices in the fight against inflation, I shall nevertheless return later to some of the financial implications of handing out money in this way without countervailing action to supplement these large subsidies, which are a form of reduction in direct taxation or indirect taxation whichever way one cares to look at it.
I appreciate the concern expressed by my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) who said, quite rightly, that there is something odd about a non-selective subsidy that applies to postal charges for the football pools while the Government refuse to introduce additional food subsidies. No one can fully support non-selective subsidies. Between 1964 and 1970 we had selective subsidies in the form of the regional employment premium. At that time the Conservatives did not like


selective subsidies. However, that is another matter.
Subsidies in vital commodities such as fuel have the virtue of providing some assistance where it is needed and it should be possible to pay for those subsidies through the tax system, which would mean that the subsidy was financed by those who could most afford it. As the hon. Member for Cornwall, North (Mr. Pardoe) said, it would need a progressive tax system which unfortunately we do not have.
I am not sure that the Liberal Party would have a progressive tax system with a tax credits scheme, which they support. However, that, too, is another matter.

Mr. Pardoe: If the hon. Member for Heywood and Royton (Mr. Joel Barnett) will refer to some of my other speeches during the period of the Labour Government he will see that I consistently urged them to be far more progressive in their tax system. I have followed that line with the present Government and I shall do it with the next, if we have the misfortune of not having a Liberal Government.

Mr. Barnett: I try not to punish myself by reading my own speeches and I hope that the hon. Member for Cornwall, North will forgive me if I avoid even greater punishment by not reading his.
I am not necessarily averse to borrowing where it is in a good cause, but I should want to do so with certain important conditions. I will return to that point later.
The way that the Bill provides the money, as hon. Members on both sides of the House have said in this brief but interesting debate, will destroy any hope of making the nationalised industries efficient enterprises. Commercial targets are a nonsense if price fixing is taken out of their control. I doubt whether anybody on the Treasury Bench would deny that.
Normal accountancy methods, whereby many private companies, through one means or another, can get their price increases are not open to the nationalised industries. If private industry cannot get its price for particular products then in many cases it refuses to make those products. That option is not open to the

nationalised industries. The only avenue open is to reduce standards, and we have seen something of that. Unfortunately, as many of my hon. Friends have pointed out, all too often the employees in those industries are blamed, totally incorrectly.
I think that the Treasury must accept that it is impossible in these circumstances to impose any kind of fiscal discipline. It is not possible when we know that deficits will be made good. That is not the worst of it. Such a situation removes all incentives. In some ways there is a positive disincentive because boards which, with great effort, make only small deficits, or even profits, will receive less than others which have not been so efficient. It is a crazy situation.
The Chief Secretary expressed some rather pious hopes that we would be able to get the nationalised industries back on to a commercial basis. I believe that would require increases in prices that successive Governments over the coming years would find it extremely difficult, if not impossible, to introduce.
No one likes destroying the whole commercial basis of an industry in this way, but if we are to have subsidies the best method is on the basis of lost revenue. I have a terrible suspicion—I hope that I am wrong—that the Government have proposed the legislation in this way to keep down the nominal amount.
In the Financial Times on Monday Harold Bolter estimated that the £92 million that is to be paid to the English electricity boards under these provisions would have been £165 million. I should like to know whether that estimate is right or wrong. I should like to know what the total subsidies for the industries referred to in the Bill would have been on the basis of lost revenue. If the estimate of £165 million is right, it could be 70 per cent. more, so it would be nearer £800 million or £900 million. The House is entitled to know what the figure would have been on the basis of lost revenue.
If the Treasury proposes to make the payment in this way to make it appear a smaller amount, it is a short sighted way of doing it, because at the end of the day the Government will have to provide the difference for new investment in these nationalised industries.
On a break even basis—just repaying the deficit—depreciation is largely the only provision left in the board's accounts for new investment; that is, on an historic cost basis without doing accounts on an inflation accounting basis. I should be interested to know whether the Treasury is prepared to pay deficits on the basis of inflation accounting. There are many accountants who think that this would not be unreasonable, particularly with inflation at today's rate. It is important that we should understand why it is not enough simply for the Treasury to find the money at a later stage.
I agree with the Chairman of the Gas Corporation that a 7 per cent. return on capital employed is not likely to prove anything like sufficient with present levels and methods of depreciating fixed assets. He said in this year's report:
It must, however, be emphasised that the target of 7 per cent., incorporating as it does the interest element, has become inadequate for the industry's financial needs because of the steep rise in interest rates in 1969. It is essential that adequate provision is made for the cost of replacing existing assets out of current revenues, either by allocations from profits to resources
—which at the end of the year in this case were only £28·5 million—
or by specific provision in the accounts. It is estimated that a proper amount for this purpose would be of the order of 2 per cent. of net assets.
I should like to know, not whether the Minister of State agrees with these specific figures but whether he thinks that the present basis of allowing nationalised industries inadequate resources to pay for future investment is satisfactory.
The Government have the worst of all possible options. By making good all deficits they will not avoid additional costs eventually and they will have destroyed incentive. No one doubts the needs of the nationalised industries for massive new investment, yet under the Bill we could end up with the crazy situation of a company that is headed for liquidation on the grounds that the more it produces the more it loses. Surely no one wants that kind of situation.
As hon. Members on both sides have said—I am thinking especially of some very sincere speeches by some of my hon. Friends—the morale of managers

and men is appalling because managements have been left to run their industries with both hands tied behind their backs. Workers are unable to get the wages that are available to many in private industry. Job satisfaction is a sick joke.
To add to their discontent, they receive appeals, in the national interest, not to make excessive wage claims because the country and their industry cannot afford it. Not surprisingly, nationalised industries are denuded of labour, which leaves at the first opportunity. It is a sad situation. Workers with any pride in the job have had it knocked out of them. That does not mean that we can afford to pay large wage increases to anyone at this time, but it means that our national wage structure is as out of date as a prehistoric monster.
I turn now to the financial and economic consequences of the Bill. The nationalised industries have not been allowed to run commercially under successive Governments. I do not blame Governments for using the nationalised industries as the one vehicle directly available to them. It will go on happening. It is inevitable. But we must recognise the consequences, particularly when the form of subsidy does not adequately compensate for a reasonable rate of return on capital employed.
As a result, instead of a subsidy based on loss revenue which would—or which should, if the accounts were prepared correctly—provide sufficient resources for new investment, the nationalised industries have had to borrow abroad. Further borrowings are being encouraged by the Treasury under this Bill.
In view of my self-imposed unwillingness to quote from past records, tonight I shall say nothing about the former criticism of present Treasury Ministers about the sort of borrowings—much smaller than these—that were taking place at that time. The position is much too serious. But I hope that the Minister will give us full details of those borrowings tonight, or in a statement or answer to a Question. I am concerned about the haphazard treatment of these debts. The matter was very well summed up by Geoffrey Bell on 11th October in The Times. He said:
From the end of March to the end of September the United Kingdom's reserves rose


by about $350 million while foreign borrowings were $1,800 million.
The figures now are slightly different, but not by much.
Today's borrowings on this account alone are roughly one-third of the official reserves. To treat debts in this way only exposes ever more clearly the stupid way that we prepare our national balance sheet. We borrow foreign currency and then add the amounts to our reserves without clearly indicating, as any reputable accountant would have to do, that we owe the same amount plus interest in foreign currency, which I fear is only too likely to cost more when we have to buy it with devalued currency.
I notice that paragraph 8 of the Explanatory and Financial Memoranda states:
it is unlikely that such guarantees
—the guarantees which the Treasury are now to give—
will be invoked in practice.'
That may well be so because of the way in which these things work. But I doubt whether anyone would believe that there will not be any cost to the Treasury, whether directly or indirectly, in writing off the debts of nationalised industries, because that will be inevitable on the present basis of financing.
Nevertheless, despite all that, if it were a straight choice of borrowing foreign currency in order to bolster the balance of payments to sustain economic growth, I would support such borrowings. However, I am bound to ask, why borrow second-hand at possibly more expensive rates than one can get oneself? I do not know what the rates are, but some very serious and searching questions were raised by Mary Campbell in an article in the Financial Times on 31st October. Talking about borrowings, she said that they have
come in for a good deal of criticism from Euromarket institutions on the grounds that British public sector bodies have been paying more for their money than necessary … This is because the rate payable by the local authority or nationalised industry must be not more than ½ per cent. below the Public Works Loan Board rate … Because of this regulation, local authorities have no incentive to borrow at the cheapest rate of interest. A second factor tending to push up the price paid has been the way the queuing system has been administered. According to banks which have been involved in arranging some of these loans, there can be a long wait between application

to join the list of potential borrowers and the granting of permission. But once permission has been given there is apparently some pressure to arrange the loan as fast as possible to make room for the next borrower regardless of market conditions.
The House will be entitled to a satisfactory answer on whether there is any truth in that. If there is, it is most disturbing.
Returning to the question of the balance of payments, it will be known that I have never been a balance-of-payments watcher. I believe that we have often caused ourselves unnecessary nightmares because of obsessions with curent account deficits. I notice the Chief Secretary assenting to that. I do not quite recall that he did so in the past.
The Chief Secretary said that we have deficits, unfortunately, but that the present deficits were expected. I thought that that was what he said. I shall look it up tomorrow. I have never been a balance-of-payments watcher. However, no one can believe that the present size of current account deficits is something that we can complacently ignore. I would not have minded very much if that balance of payments deficit had been built up in the process of building a sustainable rate of economic growth. That has not been the case. Instead, we have had an excessive combination of public expenditure and private consumption. So I cannot be as happy about this expected deficit of the size we have at present.
On borrowing, I never could understand Conservatives who used to jeer when the Labour Government announced large official debts. I prefer official debts in clear terms which are understandable to hot money borrowed at very high rates which must be repaid at very short notice or even—I do not know whether this is the case—to allowing nationalised industries and local authorities to borrow at rates which could not be as good as those which the Treasury could have got for itself. I would be interested to know the rates and terms on which they have been able to borrow.
I am not one of those who find it repugnant to borrow. On a smaller scale, many ordinary people do so to enjoy the pleasures of television and many other consumer goods. I can see no reason to criticise them for that. Most of them do so only in respect of


commitments they can afford, although there are some who with the money go on a mad spending spree, buying goods they can never hope to pay for.
The borrowing the Government are now encouraging is not as bad as that. It is for investment for the nationalised industries. As I have said, if the investment were properly financed, although obviously it would from time to time still need Government intervention, we could avoid the worst problems of the present situation and the Government would not have needed to borrow on their behalf to the present extent if they had not allowed the country to spend at a rate which will not easily be repaid.
Any objective observers must surely find the Government's policies catastrophically out of balance. Indeed, not only was the balance sheet which the Prime Minister presented in Monday's debate unaudited but there was so much missing that I doubt whether any respectable auditor would give it even a qualified certificate. If we are to be allowed cheap electricity, gas and postal services, although I doubt whether there will be many in the country who will believe that they are getting those services cheap, and although I am not concerned here with the virtual chicken and egg argument of the hon. Member for South Angus (Mr. Bruce-Gardyne) and others who are arguing about money supply and whether it comes first or as the consequences of actions of a Government, it is important that something else should give and not necessarily the wages of the men employed in those industries.
I fear that if the Government leave too little left for exports and investment, it is very much dependent on hope for it all eventually to come right. Living in hope alone is the prerogative of the eventual bankrupt. I do not believe that we are likely to head for that. I do believe that we are heading for a very serious situation. I doubt if there will be many in industry and finance or many hon. Members opposite who believe that hope is justified. They must fear, as I do, the economic and financial consequences that are likely to bring the country to a grinding halt. I agree with these words which the hon. Member for Cirencester and Tewkesbury (Mr.

Ridley) used in his courageous speech on Monday:
We must not go on pretending to the people that we can do what we cannot do. The people will despise us."—[OFFICIAL REPORT, 19th November, 1973; Vol. 864, c. 1066.]
I fear that they may be doing that already. But the long-term rewards for the country would be great if any Government plucked up their courage, took the longer view and stopped the nation living beyond its means.

The Minister of State, Treasury (Mr. John Nott): The hon. Member for Heywood and Royton (Mr. Joel Barnett) has made a thoughtful speech and I shall reply in the same vein. It is always tempting to be carried down the route of the right hon. Member for Bristol, South-East (Mr. Benn) and indulge in a partisan tirade, but the House and the country are rather bored with that approach, so I do not intend to follow him.
As for the Liberal amendment, I hope that the Liberal spokesman, the hon. Member for Cornwall, North (Mr. Pardoe), will carry out into the country, particularly into the county of Cornwall, the message that he would have preferred higher electricity and gas prices over the past three years and lower taxes. It would be helpful if he could make outside the House an interesting contribution of the kind which he made in the House tonight in parts of the country where people would be interested to hear his views.
It might help if I commenced by recalling that the original nationalisation statutes said little about the economic and financial aims of nationalised industries. They required the industries to meet all items properly chargeable to revenue account taking one year with another, but this requirement was both vague and inadequate. As my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) pointed out, the first real step towards establishing proper economic and financial objectives was the publication of the 1961 White Paper, Cmnd. 1337. That put forward the idea of a financial objective, a target surplus, to be achieved over a stated period, normally five years.
That development was taken further in the 1967 White Paper, Cmnd. 3437. In the event, most of the targets set under


the 1967 White Paper have now expired. Most of them were set for a five-year period, so it is fair to say that in any case the present Government would now be reviewing the position and considering what should be the level of the new targets.
The hon. Member for Heywood and Royton made an important and valuable comment when he said that the 1967 White Paper set the targets on the basis of net profit on net assets. That was done on the basis of depreciation on historic cost and, as he rightly said, the whole question of inflation accounting is now before us. So for those two reasons, leaving price restraint aside, we might well now be considering a new system of incentives and targets for the nationalised industries.

Mr. Palmer: I have some difficulty in following the hon. Gentleman's argument, especially when he is being retroflective. After all, the rate of return was based on the assumption that the nationalised industries could charge a fair market price.

Mr. Nott: I am coming to that. My hon. Friend the Member for South Angus said that he would be happy with a rate of return of 5 per cent. on net assets. In fact, the electricity industry achieved a rate of return of 5·8 per cent. in 1972–73. What is important in this debate is the argument about what should be done to finish the open-ended deficit financing in which we have indulged for the past two years.

Mr. Pardoe: Could the hon. Gentleman say what he thinks the target ought to be now? A target of 7 per cent. was fixed way back, but interest rates were much lower and returns were much lower. Surely, it ought to be of the order of 11 or 12 per cent.

Mr. Nott: I shall deal with how we might return to targets in future. Before I come to the important question of how we should deal with this problem in 1974–75, I must refer to prices, which were mentioned by the right hon. Member for Bristol, South-East (Mr. Benn). My right hon. Friend the Chief Secretary has outlined the considerations which were in the Government's mind when they came to apply their price restraint policies in the public sector. I do not

think that this is the moment when the House would wish me to argue the justification for the prices and incomes policy or the degree of its success.
As my right hon. Friend said, in terms of the impact of RPI, money spent on restraint in the domestic fuel tariffs is a cost effective means of holding down prices generally. Also, fuel constitutes an important proportion of the weekly expenditure of the lower income groups. My right hon. Friend gave an example where, he said, fuel accounted for 6 per cent. of the expenditure of families on an average income, whereas it accounted for 11 per cent. of the expenditure of families with an income of £15 a week. This was my right hon. Friend's example to explain that fuel subsidies were effective in subsidising lower income families.

Mr. Benn: I am following the hon. Gentleman most attentively. Surely he is not seriously trying to persuade the House that for every £1 of subsidy we get better value for the householder, and particularly for those who need help most, by putting it into a generalised fuel subsidy, when only 25 per cent. is used by the domestic consumer, as compared with key foods which go into every family's shopping basket?

Mr. Nott: I intend to deal with that. The right hon. Gentleman questioned whether it was more effective to subsidise the fuel industries or certain foods. We have adopted an entirely different approach. We have been prepared to use public funds to help keep prices down, but not without limit. Price restraint in certain nationalised industries has had a number of special advantages. It helps with industrial costs as well as directly with the cost of living.
The right hon. Gentleman used a figure of 25 per cent.; I do not know to what lie was referring. About 50 per cent. of the revenue of the gas and electricity industries is derived from domestic sales. It is a respect in which the private sector has looked to us to match the restraint required of it. The mechanics are such that we can be sure that the subsidies find their way to the consumer.

Mr. Bruce-Gardyne: My hon. Friend used a curious phrase. He said that the Government were prepared to subsidise, "but not without limit". What limits are there to the cost of subsidising the prices


of the nationalised industries when we do not know what demand will be created thereby?

Mr. Nott: I ought not to give way too much, because I am trying to cover all these issues in the course of my speech.
As for food subsidies, that last consideration applies equally to milk whereby we have financed the operations of the Milk Marketing Board over a substantial period in the interests of price restraint. When the crop situation has lent itself to it, we have financed the operations of the Potato Marketing Board in order to make plentiful supplies available at reasonable prices.
But these are instances where as a country, we are self-sufficient. There are obvious complications as soon as external factors have to be taken into account. With meat, of which the supply is inelastic in the short term, a subsidy would not guarantee that prices would be held down. Each commodity that we have considered has presented different features. We have tried to decide whether a subsidy is justified.
My hon. Friend the Member for South Angus referred to fuels. I must emphasise that consumer demand for fuels is relatively price-inelastic in the short term. The reason is clear enough: people become committed to one form of heating or lighting and they do not readily alter their consumption patterns if relative prices vary. That argument could not be used about meat, for example. I admit that the argument is true only in the short term. If price restraint were to continue for several years, we should expect demand to increase. That is a danger of which we are all conscious.
If we thought that demand was likely to be significantly higher, for example, six years from now, we should have to start planning now to meet that demand. It takes six years at least to build a power station. That situation has not yet arisen. We can say definitely that the investment programmes of the industries that we are considering have not been increased on that account. Indeed, they should be lower than in last year's White Paper, Cmnd 5178.
Although investment in the nationalised industries has proceeded apace—about £500 million was invested in the electricity

supply industry during 1972–73—I accept that the problem of distortions of demand within the nationalised industries as a result of price restraint is a problem that we cannot afford to ignore.
That is another reason for us to look to the period after the present policies are allowed to lapse. We must consider the transition to longer-term financial arrangements which will come closer to the economic principles of the 1967 White Paper. Although I do not suggest that price restraint on the nationalised industries is desirable as a separate item of policy—it is most emphatically not—I suggest that it cannot be considered in isolation from the Government's main and overriding preoccupation—namely, to reverse the inflationary spiral.
I shall return to compensation for price restraint and particularly restraint during 1974–75. The House will be aware that I am talking about those industries which were profitable before restraint and which can be profitable afterwards. I am not referring to the special circumstances of coal and rail, where different problems arise. The industries with which we are concerned, although they are not on all fours with the private sector, are those for which in principle some kind of commercial régime is appropriate.
For 1973–74, or what is left of it, there is little that we can do. The reason for the payment of compensation for 1971 is that the public sector was asked to follow the CBI's price restraint announcement made in July 1971.
Although the Government will watch closely how the industries perform for the rest of the year, we already know that electricity, gas and the Post Office are bound to be in substantial deficit at the end of the year. The boards of those industries have made it clear that the demoralising effect which continued deficits must have operates at all levels. Every hon. Member who has spoken has talked of that very problem. I can say without equivocation that Ministers share their concern.
Apart from the wider economic consequences of the present policy, the problem of morale has been a major element in considering price restraint. In the longer run, there must be a reintroduction of targets. That is in the interests of management, Government, Parliament and consumers. The immediate problem


is to devise a suitable interim basis for 1974–75.
We have drafted the Bill in such a way that we can work into the 1974–75 arrangements some return towards the sort of objectives the House is seeking. An initial approach specifically covered by the Bill—I am talking of some of the things we might be able to do in 1974–75—would be to relate compensation to a previously agreed forecast. The intention here would be to agree in advance between the Government and the board concerned the most likely outturn for the year in question. It would be done on the basis of what both parties accept as the most likely asumptions about the future course of prices and charges. After the end of the year, both parties would review the situation together, noting any changes that falsified those assumptions. It would be accepted that the Government stood ready to meet the actual deficits if they were satisfied that the management had done all it could, given the circumstances—there might be bad weather and other factors—to minimise losses during the year.
We should then want to go on to see in discussions with the industry whether it might be possible to graft on to this approach something in the nature of incentives and penalties. The Minister and the industry might agree in advance a target outturn. Instead of the kind of judgment made now to determine the amount of compensation afterwards, with all the uncertainties this would imply for the management of the industry, the Government would commit themselves to meet the deficit if that were the out-turn. But if the industry did significantly better or worse than the forecasts, the Government would split the difference in a pre-determined ratio with the industry. They would meet only part of the costs of the deterioration and, through a reduction in this compensation liability, would share in any improvement.
This approach is suitable only for the short term and would not in any way prevent us from trying to work out how we might get back to a kind of 1967 arrangement.

Mr. Palmer: I am trying to follow the hon. Gentleman's argument, particularly in relation to the electricity supply

industry. Does it mean that differential price increases will be allowed by the Government, varying between the needs of each industry?

Mr. Nott: I cannot be drawn on that because we are in discussion with the nationalised industries concerned on the regime which might be appropriate to 1974–75. I am not in a position to be specific, but I hope that in Committee we shall have an opportunity to discuss these matters in some detail. We shall listen with great care to all suggestions, because we are anxious to hear what the House feels.

Mr. Benn: I, too, am trying to follow the argument about how the Government would alter the targeting, as I understand it, by having a prior limit on the amount of deficit financing in the next two financial years. If that is to be the firm position, the Government are returning to targeting by negatively fixing the limit of their deficit financing. Is the hon. Gentleman saying that even that is an open question? How much is to be made available, or what is the maximum which will be available? Will the Government be encouraging higher prices in these three corporations in the next two or three years to get back on target?

Mr. Nott: We have a limit in the Bill of £400 million, which may be increased to £500 million. That is the best prediction we can make at present of what the deficits will be, more or less, for 1973–74 and 1974–75. That is quite separate from what I am now discussing, which is how we can devise a new system for 1974–75 which gets away from the sort of open-ended deficit financing that we shall have in 1973–74 and which we have had in earlier years.

Mr. Joel Barnett: This is important. Is the hon. Gentleman saying that it is realistic to expect in 1974 or 1975, given the present substantial rate of inflation, that any Government would be prepared to allow, on top of increasing costs, a further price increase to narrow the gap?

Mr. Nott: Obviously, this is a matter which the Government will have to consider. They will have to consider whether it is appropriate to allow price rises in 1974–75. Plainly, it is not possible for me to say at this stage whether that will happen.

Mr. Bruce-Gardyne: Again on the same point; will my hon. Friend reflect that we have so drafted the code for phase 3 that the blessed Price Commission is required to treat nationalised industries, including those that we are now discussing, differently from the private sector? In other words, it is not allowed to permit them to increase their prices and return towards their financial objectives. Does my hon. Friend say, therefore, that the Government have it in mind to act over the powers given to the Price Commission and the rôle which the commission is supposed to perform?

Mr. Nott: No, the prices and incomes policy makes provision for allowable cost increases.

Mr. Bruce-Gardyne: That is not the point.

Mr. Nott: With respect, I think it is. I think that I have answered my hon. Friend's question.
I turn now to the second part of the Bill—

Mr. Benn: This is an important matter. The hon. Member for South Angus (Mr. Bruce-Gardyne) has put a serious question. Are the nationalised industries in any different position vis-à-vis the Price Commission and stage 3 from that of anyone else? If they go to the Price Commission and can prove allowable costs derived from steel cost increases, or whatever it might be, are they to be allowed to raise their prices like anyone else? If that is not so, the price and pay code is being imposed under a different régime. I hope that the Minister can give a clear answer to that.

Mr. Nott: Certainly the nationalised industries are in a different position. But if they come to us and say that their allowable costs have increased by a certain amount, that matter will be fully taken into account.

Mr. Joel Barnett: The hon. Gentleman cannot get away with that. It is not what he said earlier. He said that to narrow the gap he would allow them an increase above allowable costs. He must come back to that. Will he allow them to increase a price above the allowable cost? That is what he said.

Mr. Nott: What I meant to say—I am sorry it I was not clear—is that they

are allowed their allowable costs anyway, and then the question of whether there should be additional price increases beyond that is a matter which the Government will have to consider.
I come now to the second part of the Bill, which is concerned with borrowing overseas. As my right hon. Friend the Chief Secretary said, there is no increase in the overall capacity of the public sector to borrow abroad, because all that the Bill is intended to do is to bring a number of other public sector organisations into line with powers already possessed by most of the nationalised industries.
Foreign currency borrowing by the nationalised industries and by local authorities is making a useful contribution to the reserves during the period when the J curve is still leading to a substantial balance of payments deficit on current account. It makes sense to use our foreign currency reserves to finance temporary deficits and the foreign currency borrowed under the exchange cover scheme increases the resources available for this purpose. Indeed, our current account deficit in the first 10 months of the year was almost fully covered from this source.

Mrs. Elaine Kellett-Bowman: Is it not sensible commercial practice for the nationalised industries to borrow for five, seven or 10 years, when repayment will not become due until our North Sea oil deposits are yielding a handsome reward?

Mr. Nott: I am coming in a moment to the repayment schedules for these borrowings, about which my hon. Friend the Member for South Angus asked a question. I wish to mention also that, although this foreign currency borrowing is shown as a gross inflow in our external capital account, we traditionally run a net outflow on the structural capital account, with a major proportion of this being attributable to the financing of export credit.
Between 1963 and 1970, the average net outflow was 700 million dollars a year; although there was in fact an inflow in 1971, the net outflow in 1972 was 650 million dollars. It makes sense to finance some of this net capital outflow by the kind of borrowing that is now taking place. The loans are justified on commercial grounds. They have the considerable


advantage that they will run for a period stretching well beyond the time when out balance of payments position will have strengthened.
The repayments should not cause difficulty. More than 2,000 million dollars have so far been borrowed. The repayment schedule is reasonably well balanced over the period from 1978 to 1982, and beyond. I emphasise that we can and do refuse to give cover and consent for loans that we judge to be unsatisfactory or loans that may cause us some embarrassment on the basis of the repayment schedule involved.
My hon. Friend the Member for South Angus asked me a great many questions, and particularly wanted to know what the repayment schedule looked like. I shall be happy to tell him. Broadly speaking, in 1978 on the capital account it involves a sum of approximately 600 million dollars; in 1979–80 about the same figure; then it tails off to 426 million dollars. The figure then goes down from 230 million dollars in 1982, 186 million dollars in 1983 and 27 million dollars in 1984. That is on the capital side.
On the interest side it is difficult to give firm estimates, because the electricity loan of 1,000 million dollars was undertaken on floating rate terms which was much the largest loan. Assuming—and hopefully the assumption is pessimistic—that the cost of this borrowing will be at 10 per cent., total interest for the next five years will be about 200 million dollars per annum. That must be compared with our present invisible surplus, which runs at around two billion dollars a year.
I hope that I have covered most of the issues, including one or two of the comments by the hon. Member for Heywood and Royton about our borrowing overseas. I wish to take up one remark made by the right hon. Member for Leeds, East (Mr. Healey) in the House on Monday. He pointed to some figures in the Banker magazine which led that publication to come to the view that the Government's liabilities abroad had gone up by over £3,500 million between the end of 1970 and the middle of 1973. This was the figure taken by the right hon. Gentleman.
In fact, that figure refers to United Kingdom liabilities in both the public and private sectors and not to Government

liabilities. It includes a substantial amount of Euro-dollars borrowed by the United Kingdom private sector to finance overseas investment. These liabilities are matched by foreign currency assets. In other words, the figure given by the right hon. Member for Leeds, East was meaningless, although I take the point that these borrowings of 2,000 million dollars are a liability. Without wishing to be partisan, I must remind the right hon. Gentleman that at one time the Labour Government ran up an official short and medium-term borrowing abroad of 8,000 million dollars. When we came to office, the official short and medium-term borrowing was still at a total of 3,506 million dollars, and we have repaid all that.
I conclude by saying a few words about the speech of the right hon. Member for Bristol, South-East. It is his whole approach that leads us to believe that Labour's plans for further nationalisation are a blueprint for disaster. It is possible to argue that natural monopolies should be subject to ultimate political control. That argument cannot apply when there is competition within an industry. The list of competitive industries the right hon. Gentleman would like to acquire is growing day by day. The hon. Member for Heywood and Royton is sometimes referred to by his hon. Friends as the "shadow Chief Secretary". But every time the right hon. Member for Bristol, South-East makes a speech about further public ownership, the shadow of the shadow Chief Secretary lengthens. When that happens, no doubt the hon. Gentleman thinks of the problem that one day could face him, for I am sure that he imagines, quite wrongly, that he will have to deal with it.
We hear about the North Sea, ship building and repairing, the air frame industry, motor insurance, a bank and an insurance company here and there and perhaps even the 25 companies, though we have not heard a great deal about them recently. But this kind of approach is not relevant to the Bill in which we are dealing basically with natural monopolies in the public sector.
The Government accept the mixed economy and value the contribution which the public sector makes towards it. But we resist the notion, and so overwhelmingly do the British people, that even


more sections of the economy should be brought into public ownership. In that way lie more political control and less competition. Open-ended deficit financing carries us down a road which in normal circumstances we should not wish to follow. If carried to excess, it brings yet more of the economy under the control of politicians. That is what the

Question accordingly agreed to.

Bill read a Second Time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bill).

Orders of the Day — STATUTORY CORPORATIONS (FINANCIAL PROVISIONS) [MONEY]

Queen's Recommendation having been signified—

Resolved,
That, for the purposes of any Act of the present Session to make provision for compensating certain statutory corporations in respect of financial loss due to compliance with the

right hon. Member for Bristol, South-East wants. It is decidedly nor what the Government want, and that is where the division between the parities really lies.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 79, Noes 8.

Division No. 12.]
AYES
[9.26 p.m.


Biffen, John
Haselhurst, Alan
Nott, John


Body, Richard
Hawkins, Paul
Page, Rt. Hn. Graham (Crosby)


Boscawen, Hn. Robert
Hicks, Robert
Pounder, Rafton


Bowden, Andrew
Hornsby-Smith, Rt.Hn.Dame Patricia
Pym, Rt. Hn. Francis


Carlisle, Mark
Howell, Ralph (Norfolk, N.)
Quennell, Miss J. M.


Channon, Paul
Irvine, Bryant Godman (Rye)
Redmond, Robert


Chapman, Sydney
Jenkin, Rt. Hn. Patrick (Woodford)
Rhys Williams, Sir Brandon


Cormack, Patrick
Jones, Arthur (Northants, S.)
Russell, Sir Ronald


Dean, Paul
Kellett-Bowman, Mrs. Elaine
Scott-Hopkins, James


Deedes, Rt. Hn. W. F.
Kilfedder, James
Shaw, Michael (Sc'b'gh &amp; Whitby)


Drayson, Burnaby
King, Evelyn (Dorset, S.)
Skeet, T. H. H.


Emery, Peter
Kinsey, J. R.
Soref, Harold


Eyre, Reginald
Knight, Mrs. Jill
Spence, John


Fenner, Mr. Peggy
Knox, David
Stanbrook, Ivor


Fidler, Michael
Le Marchant, Spencer
Stewart-Smith, Geoffrey (Belper)


Fisher, Nigel (Surbiton)
Loveridge, John
Tapsell, Peter


Fletcher-Cooke, Charles
McNair-Wilson, Michael
Tebbit, Norman


Fowler, Norman
Mather, Carol
Thomas, John Stradling (Monmouth)


Fox, Marcus
Mawby, Ray
Trew, Peter


Goodhew, Victor
Mills, Stratton (Belfast, N.)
Walder, David (Clitheroe)


Gower, Raymond
Mitchell,Lt.-Col. C. (Aberdeenshire,W)
Ward, Dame Irene


Grant, Anthony (Harrow, C.)
Molyneaux, James
Winterton, Nicholas


Gray, Hamish
Monro, Hector
Wolrige-Gordon, Patrick


Green, Alan
Montgomery, Fergus



Gummer, J. Selwyn
Morgan-Giles, Rear-Adm.
TELLERS FOR THE AYES:


Hall-Davis, A. G. F.
Morrison, Charles
Mr. Hugh Rossi and


Hamilton, Michael (Salisbury)
Mudd, David
Mr. Michael Jopling.


Harrison, Col. Sir Harwood (Eye)
Normanton, Tom





NOES


Austick, David
Johnston, Russell (Inverness)
Tope, Graham


Beith, A. J.
Steel, David
TELLERS FOR THE NOES:


Freud, Clement
Thorpe, Rt. Hn. Jeremy
Mr. John Pardoe and


Hooson, Emlyn

Mr. Cyril Smith.

national policy relating to limitation of prices, and for extending the borrowing powers of certain statutory corporations, it is expedient to authorise:

(1) the payment out of moneys provided by Parliament of such sums as may be required by virtue of any provision of that Act to enable payments to be made to Area Electricity Boards in England and Wales, the Scottish Electricity Boards, the Central Electricity Generating Boards, the British Gas Corporation or the Post Office;
(2) the issue out of the Consolidated Fund of any sums, or of any increase attributable to that Act in the sums, required by the Treasury for fulfilling any guarantee given in respect of money borrowed by certain corporations established by, or by order made under, any enactment;
(3) the payment of any sums into the Consolidated Fund.—[Mr. Patrick Jenkin.]

Orders of the Day — IRON AND STEEL

9.36 p.m.

The Under-Secretary of State for Trade and Industry (Mr. Peter Emery): I beg to move,
That the Iron and Steel Act 1969 (Continuance of Provisions) Order 1973, a draft of which was laid before this House on 1st November, be approved.
The order, as I am sure the House realises, continues in force permanently the provisions of the Iron and Steel Act 1969 relating to public dividend capital and the financial duties of the British Steel Corporation which otherwise expire on 30th March 1974. The Act took the important step of introducing public dividend capital into the capital structure of the corporation and recognised its experimental nature by limiting to five years the initial duration of the relevant provisions.
It would seem opportune, therefore, that the Select Committee on Nationalised Industries should have published its report earlier this year following a thorough and valuable examination of the report and accounts of the British Steel Corporation. In its report the Committee pointed to the difference between public dividend and equity capital, stated that the inability to pay dividends had stemmed less from the cyclical nature of the industry than from a lack of profitability and the corporation's lack of reserves, and recommended that the operation of public dividend capital should be reviewed.
As stated in the Government's reply to the Select Committee's report, published in a White Paper in August, this review has been undertaken and the Committee's comments have been carefully considered. The Government's conclusions were that the use of public dividend capital remained desirable and that the guiding consideration for the use of pdc in a nationalised industry should continue to be that the industry was basically profitable but subject to fluctuating returns. Therefore, as the British Steel Corporation fulfils these criteria, public dividend capital should continue for the corporation, which, as the House realises, has a financial objective requiring an adequate rate of return on all its capital.
I accept immediately that the corporation has so far not paid dividends on its

pdc. However, I should point out that failure to make dividend payments on the stock of other European steel companies has not been unknown in recent years.
Under the Iron and Steel Act 1972, the corporation's pdc was written down by £200 million and its indebtedness by £150 million in a financial restructuring whereby these sums were transferred to a reserve against which the accumulated losses up to the end of the financial year 1972–73 could be written off. I think, therefore, that everyone will agree that this puts the corporation's capital structure on a sounder and more realistic basis.
No one appreciates more than my right hon. Friend the Secretary of State, my right hon. Friend the Minister for Industry, or myself, that it is important that there should be clear evidence of progress towards profitability.
This year, there is more than a glint of light in the corporation's results for 1972–73. I hope that the House will welcome this. Some might have expected just a containment of its losses within the £70 million limit agreed with the Government, but the BSC achieved a profit, albeit a small one, of £2·8 million. This sum was arrived at after allowing for extraordinary items and compared favourably with the £50 million loss the previous year.

Mr. J. Bruce-Gardyne: Would my hon. Friend remind the House what that sum of £2·8 million represents in terms of a percentage on capital employed?

Mr. Emery: In real terms, the figure is, I think, 3·8 per cent., but I will check with my notes afterwards.
It was only in the second half of the financial year 1972–73 that steel demand began to recover from the depressed level of the preceding two years. It has now reached a level world-wide which producers, both domestic and foreign, are having difficulty in meeting.
In the Government's view, a nationalised industry that, in competition with private firms both at home and abroad, is manufacturing products for which the demand is so highly cyclical should not have all its capital in the form of fixed interest bearing debt. Such a capital structure is likely to result in losses in


years of low demand and obviously this can affect management morale and even influence—I should have thought unfavourably—policy decisions.
Despite rising costs and rising demand, the BSC increased its prices by only 9½ per cent. at the end of April and by a further 9 per cent. from 16th November. This is after a long period when they had remained stable. In announcing the increases, the corporation said that it recognised the importance of the Government's counter-inflation programme not only to the economy as a whole, but to its own business.
I do not think that Parliament, industry or the public would wish the corporation to maximise its profits by taking the utmost commercial advantage of present market conditions. The increases announced last week demonstrate that it is continuing to act with a great degree of responsibility.
It is right of course that there should be a requirement that the corporation will earn a return on its capital, whether this is paid in the form of interest on loans, of dividend on pdc, or used for reinvestment in the industry. This is why the corporation has been set a financial objective. Section 5 of the 1969 Act, which is also continued in force by the order, provided the power to set a statutory duty.
The Government consider that a nationalised industry with pdc should have a financial objective requiring an adequate return on its capital over a specified period. The objective which the corporation has been set is to earn over the four years 1973–74 to 1976–77 an average return on net assets of 8 per cent. after charging depreciation but before charging interest, taxation and exceptional costs arising from closures. As the Minister for Industry said when announcing this objective in August 1972, larger average returns will be expected after this period, when the corporation will be getting the full benefit of its investment programme.
In the light of all these considerations, the continuation of pdc for the corporation is fully justified. The Government will aim to issue in the form of pdc a sufficient proportion of future advances to the corporation to maintain a reasonable balance in its capital structure

between fixed interest bearing loans on the one hand and pdc and reserves on the other. It is important to get the gearing right.
Section 4 of the 1969 Act, which would also be continued in force by the order, enables the Secretary of State, after consulting the corporation and with Treasury approval, to direct that sums from the reserves should be converted to pdc. There has as yet been no occasion to use this power, which complements the power in Section 17(4) of the Iron and Steel Act 1969 to give directions about the establishment and use of the reserves.
Therefore, a fully profitable industry may be expected to finance some parts of its new investment from profits, in addition to normal depreciation. As and when the corporation becomes fully profitable, there may be an occasion when it would be appropriate to capitalise part of any retained profits as public dividend capital.
I hope that I have explained why we have concluded that these various provisions in the 1969 Act should remain in force. Section 6(2) provides for them to continue in force permanently, or for a specified period. To extend them for a specified but limited period would prolong the corporation's uncertainty about its future capital structure by making its public dividends capital as well as powers to determine a financial duty dependent on fresh legislation at the end of a given period. It is the essence of my case tonight that a long-term view should be taken.
That is what the Government are doing. The draft order, therefore, extends these provisions permanently. We are, therefore, setting up the proper capital structure in proportion, for the corporation to be certain and to be able to make the right judgments in the preparation of the 10-year operating plan, the modernisation which I believe both sides of the House regard as essential for the British steel industry to be able to go forward into the last quarter of the century.

9.46 p.m.

Mr. Eric G. Varley: I thank the Under-Secretary for the way in which he explained the order and its purpose. However, the hon. Gentleman would be the first to agree that he has


not, perhaps, covered all aspects of it. When I and some of my hon. Friends have had the opportunity of putting some questions to him, I hope that he will seek to catch your eye, Mr. Deputy Speaker, in order to answer some of those questions.
I want to direct my remarks to what the hon. Gentleman called the progress towards profitability. This is the first time that we have had an opportunity of a debate on the steel industry since publication of the British Steel Corporation's annual report. The way in which the order has been introduced ought not to obscure the very serious questions about the Government's attitude towards the corporation. Most of us will have to wait for a wider-ranging debate for answers to some other questions which give cause for concern. However, the order gives us the opportunity of examining the burden which the Government have imposed on the corporation through overt and covert price control, certainly as one of its effects will be made permanent by Section 5 of the Iron and Steel Act 1969.
The 1969 Act empowers the Secretary of State to determine the rate of return on net assets required from the corporation. It is an undeniable fact that the constraints imposed on the corporation by the Government are quite incompatible with the return on assets that the Government laid down last year. The Under-Secretary said that he hopes that we shall take a long-term view. But we have had three years' experience, and I hope to show that the Government are not living up to their original intentions regarding the steel industry.
I want to make it clear, however, in case there is any misunderstanding, that the Opposition do not dispute that it is right for the Government to manipulate the pricing policies of nationalised industries to fulfil overriding economic objectives. Perhaps that is where I and some of my hon. Friends will part company with the hon. Member for South Angus (Mr. Bruce-Gardyne). We think that it is right to intervene on occasions. That is one of the arguments used on the Opposition side of the House in favour of nationalisation.
But it is totally unfair for the Government to ask the nationalised industries

to depart from their commercial objectives and then to expect from them financial results possible only if the nationalised industries are run on purely commercial criteria. It is intolerable that the Government 15 months ago laid down an 8 per cent. return on assets and then three months later introduced a counter-inflation policy which made that 8 per cent. return impossible.
I shall not refer to the restraints imposed even earlier than that. We all have memories of the Prime Minister's notorious intervention in steel prices one Friday afternoon when he had nothing better to do. Even before that, there was the self-restraint required under the Confederation of British Industry's pact.
This counter-inflation year for the British Steel Corporation has been the last straw. The corporation's annual report published earlier this week states the position poignantly:
The financial result would have been better if steel prices in the United Kingdom could have been set at market levels. There were savings in the costs of purchases resulting from the operation of the Government's counter-inflation programme, but these were far outweighed by the effects of the steel price restrictions.
The price restrictions arose immediately from the counter-inflation programme".

Mr. Emery: When making quotations it is often useful to finish the sentence. The sentence is:
The price restrictions arose immediately from the counter-inflation programme, which the corporation supported, but the general low levels to which steel prices were held reflected the continuation of a restrictive regime which has applied for many years.

Mr. Varley: I do not object in any way to that intervention. The hon. Gentleman is right. I wanted to be fair to the corporation in making it clear that it has gone along with the price restraint policy.
Last month Dr. Monty Finniston, whom we all wish well in his new responsibilities, made it known that in the first six months of the year the corporation forfeited £40 million of profit by putting the needs of British industry above commercial practice. He recognised it. We recognise it, too. Dr. Finniston revealed that to help British industry the corporation had deliberately held back for the home market 1 million tons of steel


which could have been sold abroad at higher prices. He declared:
We think we have a responsibility to the national effort in this time of economic crisis.
I do not want in any way to misrepresent the Chairman of the British Steel Corporation. Some people would say that that action by the corporation was magnificent, but it is not very commercial.
That is the point we are making. We think that the Government are having it both ways. The Government still insist on the 8 per cent. return. The Under-Secretary echoed it tonight. Last week the corporation announced its new price increases, which incidentally were far higher than those I warned about from this Dispatch Box in April of this year. The Minister for Industry, who unfortunately cannot be with us tonight, will remember it because he rebuked me for being irresponsible. The Minister for Industry invariably accuses me of being irresponsible when I am being ultra-cautious and when he does not have an argument to advance.
The price increases have come, but they are far below what the British Steel Corporation wants. That is what the Under-Secretary should tell us about. It is a fact that the corporation requires much more and that there is some violation of our Common Market obligations.
The Government have certainly pressurised the British Steel Corporation into slashing the increases which they had planned. In fact, the Economist, for whose reliability the Prime Minister vouched last Monday, tells us that Mr. Erskine Thomas of the British Steel Corporation was on the point of handing over the new price list to the EEC officials in Brussels when the Prime Minister stepped in. The Government's interference may have cost the British Steel Corporation as much as £60 million, yet the Government still insist on the 8 per cent. return. The Government's intervention over the latest price rise delayed the increase by two weeks, and I have seen Press reports which suggest that that delay has cost the British Steel Corporation about £6 million. Yet the Government still insist on the 8 per cent. return.

Mr. Emery: I find the hon. Gentleman's thesis extremely interesting and he is arguing it very well. Therefore, I wonder whether he will continue the argument so

that we can have it absolutely complete. How much would he and his party have the British Steel Corporation put up the price of steel above the 18 per cent. increase which there will have been due to the two price rises since April?

Mr. Varley: The hon. Gentleman tempts me. I want to go back to the Conservative manifesto "A Better Tomorrow", which contains a paragraph which I have learned by heart. That states that the Conservatives will not interfere in the pricing structure of nationalised industries, and actually used the words, "such as steel". That is a party which says that it is perfectly proper on occasions to use nationalised industries, and which makes it plain that they need not follow commercial criteria. What we are objecting to is the fact that although the Govern-men are still living in this woolly land where they intervene in a much more vicious way than did the last Government in the pricing structure of the British Steel Corporation, we still have these bland assurances that long-term pricing stability and return on capital are the Government's objective. We want the Government to be perfectly open and honest on these matters.
There was a news story in The Times on Monday on the corporation's annual report, which pointed out that it,
… is insufficient to enable the corporation to achieve the financial target, set by the Government, of an 8 per cent. return on net assets".
There is now a mass of evidence which demands that the Government must be much more plain and not so disingenuous on these matters, which are very relative to the long-term development plans of the corporation. We were told by the Secretary of State that we should have about £3,000 million-worth of development in the new strategy, and that was announced with a great blowing of trumpets earlier this year. The White Paper said:
… more than half the expenditure"—
that is, more than half of the £3,000 million—
can be met from depreciation provisions and retained profits".
That is nonsense, in view of the way we are going.
What will happen if the Government's interference continues to hold down


profitability to a level which the corporation describes as inadequate? For example, will the Government make up the shortfall for which they bear absolute responsibility? Will the new development strategy have to be spread over a much longer period than the 10 years envisaged depending upon profitability, which, in its turn, will depend upon the attitude of the Government? Will the strategy, for example, be placed in jeopardy? There are those of us on this side of the House who think that it was on the low side anyway. There was talk on 18th March 1971 by the then Secretary of State for Trade and Industry of £4,000 million of investment and a production target of about 43 million tons, but it was pruned down.
The apostle of optimism, the Secretary of State for Trade and Industry, has continually described the steel industry's future as exciting. To some extent that could be in doubt, unless the Under-Secretary can tell us exactly how he sees profitability going and its contribution to the £3,000 million development plan.
We should like some straight answers to those questions. I think they are easy questions. Perhaps the hon. Gentleman can fill us in on them, so that we know exactly where we stand when we have a much fuller and wider-ranging debate on the steel industry, which I think we ought to have in the very near future.

10.1 p.m.

Mr. J. Bruce-Gardyne: I confess that I find the attitude of the hon. Member for Chesterfield (Mr. Varley) a little hard to follow. He was berating the Government for making it difficult, if not impossible, for the British Steel Corporation to achieve the financial targets which have been set for it. Yet my hon. Friend the Under-Secretary established that he believed—certainly this is in accord with what the right hon. Member for Leeds, East (Mr. Healey) told us on television the other day—that, far from the price increases permitted to the corporation being inadequate this year, they were too great and they should have been reduced by the purposive intervention of the civil servants; in other words, that we should have made the 8 per cent. target even more unattainable than it may be as things stand.
One must, therefore, draw the conclusion that the right hon. Gentleman would have us scrap the target. I have some news for him. We have been spending the earlier part of today listening to the furious tirade of Opposition Members against the Government for having scrapped the financial targets of other nationalised industries. I must confess that I expressed some despondency about this myself. It is impossible to find anything consistent between the attitude which the hon. Gentleman has advanced and that advanced by the right hon. Member for Bristol, South-East (Mr. Benn) a few hours previously.
I have to confess that I do not like anything which gives an aura of permanence to the British Steel Corporation. I cling to the perhaps fond delusion that we should be a great deal better off with the steel industry in the private sector. I cling to that fond delusion because if the steel industry were in the private sector, many of the interventions whose financial consequence the hon. Gentleman was criticising would have been much less likely to happen.
Ideally, I should like the corporation taken out of the way of temptation of the civil servants in Whitehall and their conviction that they know at any given time what the national interest may dictate. That may be in an ideal world. For the moment, we have to live with a situation where it is not fashionable to consider the scope of the restriction and containment of the public sector. So we have to look at this order against that background.
My hon. Friend gave us an extremely clear and detailed description of what was intended by the order and what lay behind it, and I join the hon. Gentleman in thanking my hon. Friend for that. I thought he performed a valuable service in setting the order in its proper perspective. He drew our attention to the fact that the main purpose of the order was to perpetuate the concept of public dividend capital in the steel industry.
We all understand what public dividend capital means. In the light of our experience, it means capital on which no form of interest or yield to the taxpayer need be offered. It is a way of endowing the nationalised industries with assets on which they are required to make no return. I know that we talk


about cyclical performance and how in the coming years the nationalised industries will be able to pay a dividend. We sing for the good years. We hope for them, but they do not come. That is because the worthy civil servants in Whitehall have intervened once again in the national interest. It has happened before and it will happen again. We must be honest with ourselves about the meaning of public dividend capital: it is a non-yield-bearing capital asset.
The desirability of continuing with such an arrangement with the corporation does not seem to be a matter of great significance. What matters is the conduct of the Government, and successive Governments, and the civil servants in Whitehall in their dealings with the corporation. It is in that respect that I have some questions to put to my hon. Friend. I hope that he can shed some light upon them if he has the opportunity to do so.
First, what has been happening to the profitability of the corporation in recent months? We have been going through a period of almost unprecedented demand for steel not only in Britain, but throughout the world. We all know that the corporation is totally incapable of meeting the demands which are placed upon it and that there is perhaps precious little chance, because of the limit on its commercial capacity, for it to increase its prices.
Is it true that against that background and since the conclusion of the period to which the annual report referred, to which my hon. Friend the Under-Secretary of State and the hon. Member for Chesterfield referred, the corporation has been plunging again into the red? If it is true, it is a horrifying situation at a time of thriving demand.
Can my hon. Friend further enlighten us as to the interesting story of the exports of steel? Of course, the calculation has been made that the corporation has forgone highly profitable exports of 1 million tons of steel. There are reports that the steel went abroad even if it did not go from the corporation. As a result of the pricing structure, during the course of the summer those fortunate customers who were able to obtain steel were able to flog it on the Continent and take advantage of much more attractive prices. That, as my hon.

Friend knows, has been reported widely in the Press and commented upon by Dr. Finniston.
It would be interesting to know whether my hon. Friend has any comment to make about that. That obviously has a powerful and direct bearing on the financial performance of the corporation as affected by the order. Can my hon. Friend shed any light on how the Government view the entitlement to intervention in the financial circumstances of the corporation, bearing in mind our obligations under EEC legislation?
My hon. Friend emphasised that the corporation had itself expressed its support for the prices and incomes policy. The hon. Member for Chesterfield (Mr. Varley) implied that the corporation was in its financial operations bound by the prices and incomes policy. That is not the case. Under the European Communities Act, it is not allowed to be so bound. However, the difference is perhaps more of theory than of spirit, because one has the impression that, in practice, the degree of arm-twisting, nudging, winking and rib-pushing between civil servants and the corporation about its pricing structure is hardly, if at all, less comprehensive than it is with the other nationalised industries.
Indeed, it might be argued that, because the other nationalised industries are clearly subject to the code and the Price Commission is obliged at least to award them the price increases to which they are entitled by the code, the degree of interventionism which the Government enjoy in the instance of the British Steel Corporation is even greater than it is in the instance of the other nationalised industries, because it is more direct.
To me, this has worrying implications for our obligations under the European Coal and Steel Community Treaty. As the hon. Member for Chesterfield pointed out, it has equally clearly worrying implications for the fulfilment of the corporation's financial objectives. Therefore, I think that this, too, is highly relevant to the order, and I hope that my hon. Friend will be able to lift a corner of the veil that has obscured the comings and goings between Grosvenor Place and Victoria Street in recent months.

10.13 p.m.

Mr. Barry Jones: It is always good to follow the hon. Member


for South Angus (Mr. Bruce Gardyne). We know him to be graceful in style, and I appreciated the pointed ways in which he put his questions. He knows that I do not agree with his political philosophy, but I certainly agree with him to the extent that he thinks that the Under-Secretary of State is a valiant man if he has the will to soldier on in this Government.
I want to take up one of the points raised by my hon. Friend the Member for Chesterfield (Mr. Varley) in which there was a hint that in the current economic problems, perhaps the strategy announced in the White Paper for one reason or another, most of them academic, may not go ahead in its current shape. The Chancellor of the Exchequer's stainless steel scissors may well snip away at the outlined £3,000 million over the 10 years in the strategy for development. If that were to be the case—and in some respects it might give a little hope for perhaps one or two of the now doomed steel towns—obviously it would raise the question of the continuance in office of the Secretary of State for Trade and Industry, for unless he were to be moved I suppose that it would be impossible to change the strategy, for, by confirming Dr. Finniston as Chairman of the British Steel Corporation, the right hon. Gentleman underwrote and underlined in total the whole strategy.
Before I come to the main stream of my argument, I would like to know where the Liberals are in this debate. The Liberal bench is empty when our benches are populated. These great apostles of participation have gone away, it seems, to sip their Ovaltine. Yet only recently the high command of that minority party sent one of their weightiest colleagues, the hon. Member for Rochdale (Mr. Cyril Smith), to my constituency to visit Shotton steel works, his task there being to create as much mischief as he could, which he did with all his admittedly gruesome capacity.
I am sorry that no representatives of this growing party are here tonight to discuss an important matter for the steel industry. I register my deep disappointment that those great participators of British politics, the king-pins of community politics, are no longer to be seen in the Chamber, although they are on record as being greatly concerned with the affairs of my constituency.
I have lately been a fierce critic of the British Steel Corporation on some aspects at least of its development strategy, with particular reference to Shotton steel works. I think that I shall remain a critic, and a critic also of the Government's timid refusal regarding Shotton to investigate an injustice of tragic proportions. But credit should go, I believe, to the late Lord Melchett and to my right hon. Friend the Member for Barnsley (Mr. Mason) for getting the public dividend capital scheme through the Cabinet, albeit after a trial run with BOAC. Perhaps I should give credit also to the corporation for dragging, albeit kicking and screaming, the near-bankrupt private enterprise steel barons into modern technical production. We have the finest steel producer in Europe, and certainly one with remarkable potential. I hope to see an effective return on pdc in the years ahead.
The background to the order in heavy industry today is sobering. There is a world shortage and a national shortage of steel. Apparently, there is a form of unofficial rationing. I am told that steel stockists are going out of their minds trying to lay their hands on steel. There are even rumours of a steel racket, the export of steel and then the importation of that same steel at a higher price. Moreover, steel workers in parts of Britain are edgy and suspicious at some of the proposed redundancies. Some of them, I know, have formed themselves into an unofficial national action committee. In these circumstances, perhaps, with the developing miners' dispute and the existing pockets of discontent within the steel work force, we have a tricky situation.
It should not be forgotten, therefore, that labour disputes this year have directly affected the pdc situation, and, naturally, one hopes that policies would always be adopted, so far as possible, to avoid the possibility of further disputes.
I want to see the corporation and the nation overall getting a good return on the capital invested. I have looked at Section 2(1), (4) and (5) of the Act, and I shall now, if I may, give the Minister a little advice for the occasion when he next has financial consultations with the corporation on the rate of return. If he wants a good rate on pdc, he should say to the corporation, "Are you sure


that your strategy for steel making is correct?" He should point out that, in order to guard against a poor return on capital, the corporation should not put all its eggs into the one basket of Japanese-style concentration of production. It is possible—in some cases almost inevitable—that all the huge sites proposed in the strategy for development may be late coming into production. Indeed there is a school of thought which believes that they may never reach their full potential. There may well be malfunctioning and commissioning costs may soar.
I hope that in his frequent consultations the Minister will emphasise in regard to the corporation's financial duty that there is a school of thought in the steel industry—indeed it may exist in the British Steel Corporation—which believes that the £3,000 million investment programme may, when all is taken into account, cost £5,000 million. It would be fair to say that before the flood of public money begins—and indeed before the consequent redundancies begin to bite—there should be a last-minute check by the Department of Trade and Industry, and particularly by the Minister for Industry, on the small print of the corporation's plans for expansion. It is absolutely vital that this should take place.
We all know that return on capital will bear a direct relationship to the soundness or otherwise of development plans. I know that the Minister is desperately keen to get value for money in the steel industry and, after last week's activities in the economic sphere, I am certain the Chancellor of the Exchequer and his Treasury colleagues will insist on that. The Minister knows that if for any reason—and I have hinted at some—one of the proposed huge new steel works grinds to a halt or comes into production late, this nation, with its critical and recurring balance of payments problems, is in dead trouble.
I conclude by offering a piece of advice to the Minister. He should augment the known Japanese-style policy of the Steel Corporation for huge complexes with an insurance policy. This insurance policy will help to bring a better return on capital. The insurance policy I propose involves a medium-sized steel plant producing 3 million tons a year. That is a glaring omission in the current strategy. The fact remains that at present there is no insurance.
I suggest the ideal location for such a plant could be the current Shotton works in my constituency. I shall not develop this part of my argument. I merely say that if the Government do not take out this insurance, it will cost the nation dear, because as the steel industry becomes more technological, it also gets more and more vulnerable.
I ask the Minister to institute a public inquiry into the future of steel making at Shotton. I hope that he and his governmental colleagues and also officials in his Department will give this request the most serious consideration. I think he knows that if he will not move on this matter I shall seek one way or another to involve the Ombudsman in clearing up what many steel workers in my constituency regard as the very phoney figures which currently doom steel making at Shotton.
When the Prime Minister instituted a last-minute investigation into whether steel making at Shotton should continue he was told that to modernise steel making there would require the expenditure of £200 million. That figure is hotly disputed, and management staff at Shot-ton believe that for a little more than £80 million steel making at Shotton can be fully modernised. For that reason I am still prepared to back the prospects at Shotton should we get a reprieve and be allowed to help the corporation to produce a much better return on capital.

10.25 p.m.

Mr. John Golding: The Minister referred to the First Report from the Select Committee on Nationalised Industries dealing with the British Steel Corporation which was published on 13th February 1973. I wish to refer to one statement in it which appears in paragraph 53:
The Corporation has suffered from ministerial interference in its commercial operations, having been frustrated from charging what it thought proper and delayed in carrying out the capital investment programme which it thought necessary. The benefit to the national interest from these interferences is dubious: the damage to the Corporation is patent and it is a tribute to its management that its morale and confidence seem to have suffered so little.
I refer to that because I believe that to be still the situation and because I think that my hon. Friend the Member for Flint, East (Mr. Barry Jones) did Dr. Finniston a disservice when he said that the ratification of his appointment meant that the strategy of the British Steel Corporation would thereby be fixed. I believe that it is not the strategy of the Corporation that is fixed; it is the strategy of the Government. I notice the Minister laughing. I have read carefully the report of the Select Committee, having myself served on it. In that report I find two statements of interest. The first is to the effect that the corporation had previously been working to a higher target than the 36 million tons. The second says that the independent consultants brought in by the Government recommended an output of between 22 million and 24 million tons. Having read the evidence contained in that report, it seems to me that the targets to which we are working at present of between 28 million and 36 million tons are some sort of shoddy compromise between 22 million and 43 million tons.

Mr. Barry Jones: I hope that my hon. Friend understands that when I referred to the strategy of the corporation and the underlining of it by the Secretary of State I had very much in mind the large number of redundancies and that to that extent the appointment of the present chairman meant that there would be no change in the rate or the place at which they occurred. That was my point.

Mr. Golding: It is my hope that in the certain event of Labour forming the next Government the redundancies and

closures will be halted immediately for reconsideration, including reconsideration of the changing financial structure and investment programme and the present world shortage of steel. The steel men of my constituency cannot understand how they can be under threat of closure at Shelton when there seems to be a shortage of steel. They think it ironic that the National Coal Board, which until recently was closing pits, is advertising in the locality for men to go down the mines. We could reach the situation where steel makers are recruited into an industry which a short while ago was declared to be obsolete and declining.
My constituents believe that the steel target should be reconsidered in view of the situation at Shelton. One issue which is important to the men there concerns the advertisements published by the British Steel Corporation on the future of steel. It was in the worst possible taste that photographs of Shelton should be used in the newspapers to illustrate the bright future for steel. I hope that the Minister will apologise on behalf of the BSC to the workers concerned.
In its advertising the corporation has failed to put across the case for the mini plant. The Shelton men, who have just received their closure brochure, think there has been inadequate consideration of the future for mini plants. They believe that the opportunities for mini plants have been given to private industry to keep it quiet. They believe that they have been sacrificed in the interests of private enterprise. They point to the creation of plants from the Midlands to Lancashire as proof of that.
The men want Shelton retained. They believe that the mini plant has a future and the kindest word they have for the BSC brochure is "rubbish". If they lose their jobs they want alternative work. My hon. Friend the Member for Flint, East, seemed to indicate that the men in his constituency at the Shotton works had the offer of alternative employment. That is not the situation, as I understand it in North Staffordshire. We were first disappointed not to get a task force, but we have been more disappointed not to be offered alternative employment, as have the workers at Shotton. In numerical terms the problem is greater at Shotton, but the situation at Shelton is still severe. The men there would prefer to remain


steel makers. But at least if they are to lose their jobs there should be identifiable alternative employment. They should have the chance of something more than a job in the pits—pits which were recently under threat of closure.

Mr. Barry Jones: My hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) mentioned that the workers at Shotton have the prospect of alternative employment. Like the workers at Shelton they have in exchange for the substance of a steel-making job only the shadow of alternative work. They have no clear and certain prospects. I am sure my hon. Friend would like to know that because he has made an effective speech and that additional information will help him strengthen his contribution even more.

Mr. Golding: I thank my hon. Friend for that intervention. I ask the Minister to try to prevent these closures taking place. If that is not possible, then I ask for alternative work to be provided as quickly as possible for the men affected.

10.36 p.m.

Mr. Emery: With the leave of the House, I should like to answer some of the questions that have been posed in this concise but important debate. As the order affects the British Steel Corporation, it is not surprising that some of the questions have gone a little wider than might have been expected.
The hon. Member for Chesterfield (Mr. Varley) asked for a public inquiry into the competitive business situation of the British Steel Corporation and its financial position. He seemed to suggest that there should be disclosure of information about prices and the pricing structure.
On Thursday, 15th November, in a Press release, the BSC stated:
In considering its own price levels, the Corporation has had very much in mind the need to contribute to the national and the European fight against inflation.
The corporation makes its own decisions on pricing. In making this announcement the corporation referred to the views and judgments that it took into consideration. This is understood not only by the corporation but by the Community.
That is why I was perhaps a little brash in asking the hon. Member for Chesterfield what prices he would have suggested. We have had no answer to that question. It is necessary to underline that point. I understand the hon. Gentleman's difficulty. He wants to ride two horses at the same time. He wants to be able to suggest that the Opposition are doing everything possible to encourage the BSC to be profitable and at the same time are not creating increasing inflation. Of course, he will not answer the question, and it is fair to point out that he did not.
The hon. Member thought that there were considerable constraints on the BSC to make its statements compatible with Government policy. I do not think that that is the case. It is the corporation alone that has made the decisions about its pricing.
My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) talked of an ideal world in which there would be no aura of permanents—I liked that phrase—about the BSC. But I have to disillusion him. There is such an aura, supported by both Front Benches. I want the BSC to be one of the most successfully operated steel manufacturers in the world, and I hope that this reconstruction will help. My hon. Friend asked me earlier about the rate of return represented by the £2·8 million profit. I said 3·8 per cent., but it is in fact 3·4 per cent. I wanted to set the record straight.
My hon. Friend also asked what had been happening to the corporation in recent months. Within the last two or three weeks, the BSC has published a statement showing a consolidated profit for the six months ended 29th September 1973 of £3 million, before providing for the costs of closures, which are allowed for in the offset against the general reserves. This compares with a loss of £4 million in the corresponding period of the previous year and a profit of £2·8 million over the whole year. Thus some of my hon. Friend's fears are not justified.

Mr. Bruce-Gardyne: My hon. Friend will accept that the £3 million profit over the six months to the end of September is not necessarily inconsistent with the proposition in the Press that the BSC


was once again in a loss-making situation in the weeks preceding the latest price increase.

Mr. Emery: It is possible to contend that that is so, but it is also possible to contend that it is not. Let us leave it at that.
I have seen several times in the Press and in letters from hon. Members the suggestion that people have been exporting and then re-importing steel, thus making a nice profit, a dual mark-up, from the prices that the British manufacturers are paying. There are many assumptions here, but proof is difficult to get. If anyone has concrete information about this, I and my Department would very much like to receive it.
I sometimes think of the hon. Member for Flint, East (Mr. Barry Jones) as the hon. Member for half of Shotton. Two hon. Members represent Shotton, from both sides of Flint.

Mr. Barry Jones: Shotton steelworks is entirely within the constituency of East Flint. It is estimated that 70 per cent. of its work force live in East Flintshire. Very largely, the townships that serve the steelworks are Connah's Quay and Shotton.

Mr. Emery: If the hon. Gentleman has told me that once, he has told me seven or eight times, both in writing and orally. But there is another hon. Member who represents part of Flint, my hon. Friend the Member for Flint, West (Sir A. Meyer), who is also interested in the workpeople there. The hon. Gentleman would be the first to admit that.
The decisions on the strategy are the decisions which were put by the corporation to the Government. Time and again we have heard from the Opposition Front Brench and elsewhere that this is a strategy devised by Government and superimposed on the corporation. That is basically what has been said. It was said by the hon. Member for Newcastle-under-Lyme (Mr. Golding).
I say most positively that the decisions and the whole aspect of the 10-year programme were the work of the corporation. The whole preparation of the strategy was put to the Government and the Government saw fit to approve it.

Mr. Golding: I may be wrong, but from the evidence contained in paragraph 36 of the Select Committee report it is quite clear that it was the joint steering group, which included representatives of the Treasury, the Department of Trade and Industry and the corporation, which considered the long-term plans and the financial and economic prospects of the corporation. It is also clear, from reading the evidence of Lord Melchett and the Select Committee's Report, that the advice of Government consultants was 20–24 million tons and that the corporation had previously been working to a higher target than 36 million tons, which we know to be 43 million tons. We know that what came out of the joint steering group was 28–36 million tons. It does not do for the Minister to keep denying the work of the joint steering group. We know that the Government leaned on the corporation in that committee.

Mr. Emery: The hon. Gentleman says that he knows. He was not a member of the Government. He was not in my position. He may infer that from the figures that he has given, but it is an inference and not a fact. He must not talk in the House as though it were fact, because that is not correct. However, I do not wish to raise the temperature of the debate. I reiterate clearly that it is not a fact and I hold to that position. I was there and the hon. Gentleman was not. Let us take the matter no further.
The hon. Member for Flint, East and the hon. Member for Newcastle-under-Lyme raised the question of redundancy. The Government have gone to considerable lengths to ensure that where there are possible closures and problems of redundancy, there shall be a task force, and that every aspect of the problems of redundancy shall be considered.
I was at the Stanton and Staveley works the other day. There had been a considerable problem about redundancy involved in certain of that firm's closures. But I am delighted to be able to say that the problem of redundancy is one which, feared originally, has now been entirely overcome. The men have been absorbed within the working of the plant and elsewhere. Where the management had a problem, that problem has been


overcome to the extent that the management is now looking for labour in certain areas. That is how it can be done through co-operation. That is how I hope the corporation will be able to continue to deal with the overall expansion of the industry.
The object of the exercise is to confirm the re-structuring of the capitalisation of the corporation, to allow it to know what its future position is so that it knows that there are no limitations which could have arisen under the 1969 Act of the timescale affecting private dividend capital. We are abolishing that and allowing the corporation to have the confidence which is necessary for it to embark on the 10-year plan to obtain as efficient a steel industry in Britain as is humanly possible.

Question put and agreed to.

Resolved,
That the Iron and Steel Act 1969 (Continuance of Provisions) Order 1973, a draft of which was laid before this House on 1st November, be approved.

Orders of the Day — LAND TENURE REFORM (SCOTLAND) BILL

Order for Second Reading read.

Motion made, and Question put (pursuant to Standing Order No. 67 (Public Bills relating exclusively to Scotland)).

That the Bill be committed to a Scottish Standing Committee.—[Mr. Hall-Davis.]

Question agreed to.

Orders of the Day — ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Hall-Davis.]

MR. KEITH ROBINSON

10.51 p.m.

Mr. Walter Johnson: I am grateful for this opportunity of raising on the Floor of the House the case for compensation of ex-Rifleman Keith Robinson, who served with the 3rd Battalion, the Royal Green Jackets in Northern Ireland. Mr. Robinson is aged 23 and married with one child. He joined

the Army as a boy soldier and was later transferred to the Royal Green Jackets, and he served in Northern Ireland.
On 4th October 1971 Mr. Robinson was wounded by a sniper's bullet in the knee and ankle whilst serving in Northern Ireland. After a number of operations one leg finished up shorter than the other. There is also muscle wastage. He will have a permanent limp. There was at one time fears that he would lose the leg, but that did not happen. Mr. Robinson could have been given a desk job in view of his injuries, but he volunteered to return to his unit and five days later on 25th August 1972, he was shot in the back of the neck.
Since that time Mr. Robinson has suffered from severe headaches and pounding in the head which often continues for days. He cannot stand bright light. He wears tinted glasses. He cannot stand noise of any kind, not even that of his young child, whose crying causes him severe headaches. Under the slightest stress he develops a bad stutter. An indication of the man's mental state is that he was admitted to the Derbyshire Royal Infirmary in February of this year following an overdose of tablets. In other words, this young man tried to take his own life, as a result of the stress and strain of normal day-to-day life. Since that time, he has been seen regularly by a consultant psychiatrist at the Derbyshire Royal Infirmary.
I saw Keith Robinson in Derby in August this year, when he attended one of my interview sessions, and he told me that he had been offered £1,000 compensation for both injuries. He turned that offer down, although he subsequently accepted £750 because he was in dire financial straits, on account of a final settlement later. I wrote to the Secretary of State for Northern Ireland on 2nd September, with a copy to the Secretary of State for Defence, asking that Robin-son's case be heard in a court in England. I want to make it abundantly clear to the Minister, as I have tried to do in correspondence but without effect, that this young man is scared to death and frightened by the prospect of going back to Northern Ireland for his case to be heard in a court there. I ask the Minister and other hon. Members in this House whether they would be happy at the


prospect of going back to Northern Ireland, if they had suffered such injuries in the service of their country. We all know about the third time being lucky, and Mr. Robinson fears that if he goes back to Northern Ireland the snipers of the IRA will be more successful.
I have asked both the Minister of Defence and the Secretary of State for Northern Ireland to have this case heard in this country, and no one has given me any reason why it should not be heard here, in order to spare this young man an appalling ordeal. I have received no reply from the Secretary of State for Northern Ireland, but on 24th September the Minister of Defence replied that Robin-son's solicitor had stated in a letter that he would be asking for sums of £5,000 and £10,000 for the two injuries—That is, £15,000 in all.
I would refer the Minister to that letter, signed in his absence by a colleague, the hon. Member for Stroud (Mr. Kershaw), who is Under-Secretary of State for Defence for the Royal Air Force. He said:
Briefly I understand that Mr. Robinson's solicitor … has advised that, based on the medical evidence available at the time of his discharge, sums of £5,000 and £10,000 should be asked for in respect of the two separate injuries he sustained.
I should like the Minister to bear that letter in mind.
Mr. Robinson has been advised that the court hearing will now take place in Belfast on 28th November. He has been told by the Ministry of Defence and by his solicitor that in his own interest he should attend. If he does not attend the judge will be bound to take account of the medical evidence available and the case put forward by counsel both for Mr. Robinson and for the Home Affairs Department, Northern Ireland.
Mr. Robinson was agitated and upset at the prospect of returning to Belfast. After discussion with him—I have seen him practically every week since August when he first came to one of my interview sessions—he said that if I would go with him he would take the chance and go to Belfast. I do not want to go to Belfast. I have no aspiration to go there in the present circumstances. However, I said that I would go with him. I wrote to the Ministry of Defence asking to be allowed to go with him and for my expenses

to be met by the Ministry. That permission has now been turned down on two occasions.
I am appalled and shocked by the Ministry's attitude on that aspect alone. There must be military planes flying backwards and forwards between Britain and Northern Ireland half a dozen or a dozen times every day, yet the Ministry has refused to let me accompany Mr. Robinson to Belfast for his case to be heard. I am shocked and appalled that such a situation can exist.
I would willingly meet my own expenses, but that is not the point. Mr. Robinson does not want to go back to Northern Ireland and I understand why he does not want to return. The Minister has turned down on two occasions a reasonable request for me to accompany him on his journey so that he can have some comfort, guidance and advice. That is mean and petty and reflects the callous indifference of the Ministry of Defence. It has shown that it has no compassion or understanding of the serious condition of one of its young soldiers who has been seriously wounded on two occasions.

The Under-Secretary of State for Defence for the Army (Mr. Peter Blaker): I am sorry to interrupt. The hon. Gentleman said that the Ministry of Defence has refused to allow him to go with Mr. Robinson. Will the hon. Gentleman say in what letter the Ministry has said that?

Mr. Johnson: I have made it clear to the Minister in successive letters that I should like to accompany Mr. Robinson. I have asked for my expenses to be paid. The Minister knows that on two occasions he has written to me saying "No". There are military aircraft flying backwards and forwards to Northern Ireland every day. Probably those aircraft are half empty. Surely arrangements could have been made for me to give this man some guidance and comfort during the ordeal which he faces next Wednesday.
It is not asking very much. It is typical of the attitude of the Ministry that it should refuse such a reasonable application. It should not have been my job to be fighting this young man's case for better compensation. It should have been the Ministry's job to do so. Robinson is one of its young soldiers. He has been


injured in the service of his country and discharged and has a claim against the civil authorities in Northern Ireland for compensation. The Ministry should have fought his case. It should not have been for Robinson to come to me.
I am appalled that this sort of thing should happen. It can be understood why, despite expensive recruiting campaigns, young men do not want to go into the Services. They will not want to do so if they are not treated and looked after properly by those responsible for them.
I have mentioned the attitude of the Ministry of Defence. I make no apology for saying that I condemn the Ministry for the way in which it has behaved in this matter. As for the Secretary of State for Northern Ireland, I have made a personal appeal to him for assistance in this matter, particularly stressing that in my view this case should be heard in this country. This youngster should not be forced to go to Northern Ireland. All that I have had so far is a letter. To be fair, it was of some help, and the civil servant concerned could not have been more helpful. But that is all I have had—a letter from a civil servant in the office of the Secretary of State for Northern Ireland. I am disappointed. I have always regarded the Secretary of State as a man of compassion and understanding, and the sort of person who, if he knew the facts, would take a personal interest in such a case. I hope that that observation will be reported back to him. I am particularly disappointed that he or his representative cannot be here tonight.
As a result of the further representations that I have made on behalf of Robinson to his solicitor, a suggestion was made that out-of-court discussions might take place to see whether there could be some increased offer. The position is that as a result of these discussions the original offer of £1,000 has now been increased to £5,500. But from this sum, £750 must be deducted, as it has already been paid, and there is still some doubt about the ex gratia payment which was made and whether an evaluation of this sum must take place to ascertain whether that, too, must be deducted from the lump sum. The position is not clear, but the letter from the Department says that account will have to be taken of this. Therefore, on a normal actuarial valuation

of £200 a year, for whatever length of time may be involved, it would seem that another £2,000 might be taken off the £5,500 lump sum.
Robinson is in a shocking state. He has had 11 jobs since he was discharged from the Army. He has had to leave all of them because he cannot concentrate. He has been advised by the psychiatrist to give up training at the rehabilitation centre to which he was sent two months ago. This, we hoped, would be the salvation of this young chap. I believe that the work prospects for the future are very remote indeed. I cannot see him being able to hold a job down in his present condition. But it is not too late for justice to be done and for the case to be heard in England. Will the Minister get in touch with his colleagues in the Army and in the office of the Secretary of State for Northern Ireland to see whether, even at this late stage, the case could be heard in this country?
If these injuries had happened to a man in industry we would not be talking in terms of £5,500. In industry, if a man got a permanent limp, and would always be highly neurotic, anxious and worried, we would be talking in terms of £30,000 at the least. I want this youngster to get a lump sum which can be invested so that his future will be secure. He is married with one child. I cannot see him holding down a job.
I ask the Minister to join me in a fight to get a square deal for one of the young fellows who joined the Army as a boy, who has served his country and has been wounded twice seriously in the service of the country. I ask him to try to get a square deal for Robinson. There are various ways in which that can be done. The case should be heard in this country so that Robinson is not faced with the awesome prospect of going to Northern Ireland. If that cannot be done, discussions should take place urgently in Northern Ireland to try to get a reasonably satisfactory out-of-court settlement to save his having to go over there. I ask the Minister to reply to those two points in particular.

11.10 p.m.

The Under-Secretary of State for Defence for the Army (Mr. Peter Blaker): I congratulate the hon. Member for Derby, South (Mr. Walter Johnson) on


having obtained this Adjournment debate and having raised the important question of his constituent's claim for compensation, not least because it will give me the opportunity to clear up what I believe to be one or two misunderstandings in the hon. Gentleman's mind. He referred to the fact that no Minister from the Northern Ireland Department is here. I have explained to him why that is so. They have sent their apologies. They have been engaged on business in Northern Ireland today.
The case raised by the hon. Gentleman is a sad one and illustrates in human terms the price we have to pay for keeping the peace in Northern Ireland. No words of mine can adequately pay tribute to the courage and devotion to duty of the men and women of the security forces who have served, are serving and will serve in Northern Ireland. The Government owe it to them to make sure that the difficulties for those who are wounded or injured and for the widows of those killed are minimised to the greatest possible extent.
Of course, nothing that the Government can do can give back to Mr. Robinson the health he enjoyed before he went to Northern Ireland, but I want to tell the hon. Gentleman what has been done for him financially and in other ways. Mr. Robinson had the unusual ill fortune while serving in Northern Ireland to be wounded twice. As a result of this wound, it was necessary for him to be discharged from the Army on 29th December 1972 on medical grounds.
On his discharge from the Army, Mr. Robinson received an invaliding gratuity of £176. With effect from 1st April 1973, he was given an ex gratia award of £200 a year. This will be increased to £218·60 from 1st December 1973. In addition, Mr. Robinson received a war pension award from the Department of Health and Social Security.
His degree of disability was originally assessed at 20 per cent. with effect from 30th December 1972, which entitled him to a pension of £2·24 a week. The award was re-assessed in July 1973 and a 30 per cent. disability pension was awarded and back dated to 30th December 1972 at the rate of £3·36 a week. The award was increased because of a general in-increase in benefits to £3·84 a week from 3rd October 1973. In addition to this

sum, Mr. Robinson receives a family element, bringing the total DHSS benefit to £4·11 a week from 3rd October 1973. I understand that Mr. Robinson has lodged an appeal to the Pensions Appeal Tribunal against the assessment of 30 per cent. disability. Mr. Robinson attended a Government training course from 20th August 1973 to 2nd November 1973. He terminated the course voluntarily for medical reasons. I understand that it is still open to Mr. Robinson to return to the course if his health permits it, and I am sure that the authorities will do all they can to help Mr. Robinson join another course later if that is his wish. During the course, he received a weekly allowance of £23·45. He is now in receipt of unemployment benefit at the rate of £19·95 a week. Consequently the total amount he is now receiving, taking into account the various payments I have mentioned, is almost £28 a week.
Mr. Robinson made a claim for compensation under the Criminal Injuries to Persons (Compensation) Act (Northern Ireland) 1968. The hon. Member has made a number of points with regard to this claim. However, I should make it clear that this claim is a private one, submitted by Mr. Robinson, advised by his solicitor, and that the claim falls to be considered by the Northern Ireland courts acting under statutory authority. The hon. Gentleman said that in August 1973 the only offer Mr. Robinson had received was one of £1,000, which was for both injuries. My understanding is that the offer was for the first injury only.
The hon. Member has asked why the claim has taken so long to be settled. The length of time for an injury claim to be settled will always depend on the nature of the injuries received and the time which elapses before a final medical prognosis is made. In Mr. Robinson's case interim payments totalling £750 were made while the case was being investigated.

Mr. Walter Johnson: Does not the hon. Gentleman agree that that £750 must come out of whatever final compensation is decided? I had a letter from Mr. Robinson's solicitor only this week clearly stating that that was what must happen, and I understand from the Ministry itself that any such sum would have to be deducted.

Mr. Blaker: It would not be proper for me to comment on those sums, because they are a matter for the court and Mr. Robinson's solicitor to settle. It would not be proper for me or the Ministry to take over this matter because it is a matter that an Act of Parliament has decided should rest with the court. I cannot say whether the hon. Member is right in saying that there must be some deduction in respect of the ex gratia payment. The court is obliged to take into account in assessing the amount to be paid any award under the ex gratia scheme, but it is not for me to say whether there will be any deduction from the £5,500. I do not know. It is true that there would have to be a similar deduction in respect of any benefits received from any other source if the claim were made by a civilian, so this arrangement does not apply only to a soldier's claim under the relevant Act.
The hon. Member asked why it was necessary for Mr. Robinson to travel to Northern Ireland for his claim to be heard. The answer is that this is not essential. It is possible for him to be represented and for the court to make a decision on the basis of written medical evidence. However, Mr. Robinson has been advised by his own solicitor that it would be in his own interest to attend court in person. His claim cannot be heard in England because the Act is Northern Ireland legislation and applies only in Northern Ireland. The Act requires that claims shall be heard by the Northern Ireland county courts and these courts cannot sit outside their areas of jurisdiction in Northern Ireland.
The hon. Member said that the Army should have helped Mr. Robinson to present his claim. That would not have been proper. The proper course is for the solicitor to advise Mr. Robinson, but the Army helped him in the appointment of the solicitor and by providing medical evidence. Again, I cannot comment on whether the amount of compensation offered is adequate. It is a matter for the court and it would be improper for me to comment.

Mr. Johnson: The hon. Member will have seen the letter sent by his colleague in the Ministry of Defence which says that the solicitor himself has said that

the compensation for which he will be asking will be £5,000 for the one injury and £10,000 for the other.

Mr. Blaker: That may be, but it is not for me to comment on the propriety of what the solicitor says.
As regards Mr. Robinson's safety, all Service men or ex-Service men attending courts in Northern Ireland for this purpose are met on arrival and escorted throughout their stay. In this case, not because we believed there was any special risk but in order to allay Mr. Robinson's fears, we offered to provide an officer to accompany him and remain with him on the outward and return journey. It is likely that it will be possible for them to return the same day, but if it is necessary for them to stay overnight, they will be accommodated with an Army unit. I fully understand Mr. Robinson's feelings about returning to Northern Ireland, but the arrangements to look after him have been made with great care and I hope that the hon. Member will reassure him to that effect.
It is, of course, open for any plaintiff to apply to the court for the reimbursement of his expenses, including his travelling costs, and I understand that these are normally paid on the order of the court. However, we are prepared exceptionally to meet the cost of Mr. Robinson's travelling and accommodation expenses and also those of his official escort. I am afraid that it would not be appropriate to meet from official funds the expenses of any other advisers Mr. Robinson wishes to take with him on a private basis.
I should mention that in addition to the other sums I have mentioned, various Service funds have done their best to help Mr. Robinson. He has received £260 from the Army Benevolent Fund and grants totalling £150 from the Riflemen's Aid Association. I understand also that the Riflemen's Aid Association would be prepared to consider making a further grant to Mr. Robinson to enable another person to accompany him to Northern Ireland, if that is his wish. I think that this may be of relevance to the hon. Gentleman's desire to accompany Mr. Robinson.
May I put the record straight? The hon. Gentleman gave the impression that the Ministry of Defence had said that he


could not go to Northern Ireland. I think that he meant that we could not pay for him to go to Northern Ireland. In view of what I have said about the Riflemen's Aid Association being willing to consider making a further grant to Mr. Robinson in that connection, I hope that that problem will be solved.
The Ministry of Defence has always taken great care to see that wounded soldiers are looked after, not simply while they are still in the Services but

after they have left. Within the last year, a new unit has been set up in the Ministry to co-ordinate all the arrangements for their after-care, many of which, of course, are the responsibility of other Departments. I believe, having reviewed this case thoroughly, that we cannot rightly be accused of letting Mr. Robinson down.

Question put and agreed to.

Adjourned accordingly at twenty-two minutes past Eleven o'clock.

Second Reading Committee

Wednesday 21st November 1973

[MRS. LENA JEGER in the Chair]

The Committee consisted of the following Members:


Mrs. Lena Jeger (in the Chair)


Amery, Mr. Julian (Minister of State, Foreign and Commonwealth Office)
John, Mr. Brynmor (Pontypridd)



Jones, Mr. Dan (Burnley)


Archer, Mr. Jeffrey (Louth)
Judd, Mr. Frank (Portsmouth, West)


Bishop, Mr. E. S. (Newark)
Knox, Mr. David (Leek)


Dalyell, Mr. Tam (West Lothian)
Lane, Mr. David (Under-Secretary of State, Home Department)


d'Avigdor-Goldsmid, Major-General Jack (Lichfield and Tamworth)




Madel, Mr. David (Bedfordshire, South)


Goodhart, Mr. Philip (Beckenham)
Price, Mr. David (Eastleigh)


Harper, Mr. Joseph (Pontefract)
Wainwright, Mr. Edwin (Dearne Valley)


Haselhurst, Mr. Alan (Middleton and Prestwich)
Wall, Mr. Patrick (Haltemprice)


Irvine, Sir Arthur (Liverpool, Edge Hill)
Weatherill, Mr. Bernard (Croydon, North-East)


Jenkins, Mr. Hugh (Putney)




Miss A. Milner-Barry, Committee Clerk.

BIOLOGICAL WEAPONS BILL

10.30 a.m.

Resolved,
That if the proceedings on the Biological Weapons Bill are not completed at this day's sitting, the Committee do meet on Wednesday next at half-past ten o'clock.—[Mr. Amery.]

Mr. Tam Dalyell: On a point of order, Mrs. Jeger. I do not want to start by being curmudgeonly, but I must say that it was unsatisfactory to be given such exceedingly short notice of the sitting of the Committee, for other meetings of some importance are taking place. As we have accepted the position on this occasion, what are the proposals for the Committee stage?

The Chairman: I have every sympathy with the hon. Member, but that is not a point of order.

Mr. Hugh Jenkins: Further to that point of order, Mrs. Jeger.

The Chairman: As it was not a point of order, I cannot consider the matter further.

Mr. Hugh Jenkins: On an entirely separate point of order. Are we to be given better notice in future in respect of a Second Reading Committee, even if we cannot refer to the Committee stage of the Bill?

The Chairman: I have no doubt that the hon. Gentleman's remarks will have been recorded, but I can take no action, for it is not a point of order.

10.31 a.m.

The Minister of State for Foreign and Commonwealth Affairs (Mr. Julian Amery): I beg to move,
That the Chairman do now report to the House that the Committee recommend that the Biological Weapons Bill ought to be read a second time.
The Bill is concerned with the Biological Weapons Convention. Britain signed that convention on 10th July last year. We are what is called a depositary Power of the convention. Article 4 of the convention obliges us to take measures to prohibit and prevent persons from engaging in activities forbidden by the convention. There are no such provisions in United Kingdom law at present. There is a gap, and the purpose of the Bill is to fill that gap.
It may help the Committee if I first describe the history of the Biological Weapons Convention. Under the Labour Government and the present Government, Britain has played a large part in the story. In 1968, Britain tabled a working paper at the 18-Nation Disarmament Conference in Geneva. Our paper called for the early conclusion of a new convention to ban biological methods of warfare, that is, germ warfare and related activities.
Our purpose was to separate biological warfare from the intractable problem of chemical weapons with which it had previously been linked. The 1925 Geneva protocol had already referred to biological weapons. It prohibited the use in war of gas and analogous substances and devices. It also banned the use of bacteriological methods of warfare. Our proposal in 1968 was not intended to supersede the Geneva protocol, but to supplement it by prohibiting not just the use, but the production and possession of biological agents for hostile purposes.

Mr. Dalyell: The right hon. Gentleman used the phrase "intractable" in relation to chemical warfare. Was he using it in the sense that the problem of chemical warfare was thought in the past to be intractable, or do the Government think that it is still intractable?

Mr. Amery: Over the years there had been little success in dealing with the problem of chemical warfare. We considered, as did the Labour Government, that by hiving off, if I may use the term, biological warfare from chemical warfare, we might move forward. We succeeded in that. Chemical warfare is another subject and can no doubt be discussed on an appropriate occasion, but the attempt to proceed with disarmament measures of biological and chemical warfare combined had proved to have intractable problems and therefore we hived off biological warfare.
In July 1969, we took a further step. We formally tabled a draft convention for the prohibition of biological methods of warfare. It was later published as a White Paper, Cmnd. 4113. Agreement was subsequently reached in Geneva on the text of a convention to prohibit not only biological agents, as in our draft, but toxins. I am advised that toxins are poisonous substances which in their natural form are produced by biological agents, but are not themselves living organisms and therefore cannot reproduce themselves.
Serious negotiations began in 1971 and resulted in the Convention on Prohibition of the Development, Production and Stockpiling of Bacteriological and Toxin Weapons and Their Destruction—that is rather a mouthful. The convention is commonly referred to as the Biological Weapons Convention, and perhaps the Committee would be well advised to follow that usage. The Convention was opened for signature in London, Moscow, and Washington on 10th July 1972. There were three depositary Powers—the United States, the Soviet Union and Britain—and all three signed on that day. The convention was presented to Parliament in August 1972—Cmnd. 5053.
Its purpose is to ban the possession in all circumstances of biological and toxin weapons. It is directed primarily towards States, but each State which is a party to the convention is obliged to take measures to prohibit and prevent other persons apart from States from engaging in the activities forbidden by the convention—
within the territories of such state, under its jurisdiction or under its control anywhere.


At present there are no specific provisions in United Kingdom law to satisfy that obligation and until we have made legal provision, we shall not be in a position to ratify the convention. That is why we are considering the Bill today.
The Government consider that ratification is important because the convention will not come into force until it has been signed by 22 States, including the three depositary Powers—ourselves, the Soviet Union and the United States—and without our ratification the convention cannot therefore enter into force. We hope to ratify simultaneously with the other two depositary Powers. This has been the practice with similar measures in the past.
At present 110 States have signed the convention and 30 have ratified it, so we have more than a quorum of 22. There are only three significant omissions from the list of countries which have signed—China, France and Sweden. France has well-known objections to partial disarmament measures. She has, however, passed domestic legislation on the lines of the convention. Sweden attaches importance to progress on a chemical weapons treaty and without such a treaty she refuses to sign the biological weapons treaty. China insists on nothing less than general and complete disarmament.
The Bill is largely self-explanatory. Clause 1 defines the new offences created. It provides for a maximum sentence of life imprisonment and its wording follows that of the convention.
Clause 2 makes the institution of proceedings subject to the consent of the Attorney-General, but it also enables vital steps to be taken to obtain warrants or arrest suspects as a necessary preliminary to any proceedings. It also removes the offence from the jurisdiction of the county courts in Northern Ireland. Clause 3 deals with offences by officers of bodies corporate.
Clause 4 gives the police powers to search premises and to seize suspect material. This provision is important on practical grounds, for it could be difficult for the police to determine on the spot whether material was likely to be covered by the Bill.
Clause 5 excludes the new offence from the jurisdiction of courts martial and restrict trials to civil courts.
Clause 6 extends the Bill to Northern Ireland and permits its extension by Order in Council to other territories in accordance with Article 4 of the Convention. That article provides that a State shall take measures to fulfil its obligations under the convention
within the territories of such state, under its jurisdiction or under its control anywhere.
I commend the Bill to the Committee. It is a straightforward and I hope uncontroversial measure designed to permit us to fulfil our obligations under an important arms control measure which is of great interest to the Foreign and Commonwealth Office. Its provisions are largely matters for the Home Office and my hon. Friend the Under-Secretary will wind up our discussion and try to deal with those matters—and I am sure that he will do so admirably—falling within the jurisdiction of the Home Office rather than the Foreign and Commonwealth Office.
I am sure that I speak for the whole Committee when I say that we are glad to be sitting under your chairmanship, Mrs. Jeger. Having had some experience of Committee procedures during the passage of the Housing Finance Act, I look forward to a somewhat smoother passage for this Bill.

10.42 a.m.

Mr. Brynmor John: I can set the Minister's mind at rest in that I am sure that the passage of the Bill will not be a repeat of the passage of the Housing Finance Act.
In the past few months there has been an unhappy reminder of what men can do if they have sufficient animosity and ready supplies of arms available. Therefore, it is pleasing, despite the anxiety of the Middle East conflict and the possibility, which is now becoming more remote, of an escalation there, to deal with a Bill which seeks to deny weapons potentially the most horrifying to be used by one man on another. I give the Bill a sincere welcome. We should not divide the Committee against it, but that is not to say that there will not be matters of detail and principle to raise.
I will not criticise the Bill in principle, for I wholly accept the principle,


but only where I think the treaty did not go far enough, or is imprecise. It is pleasing to welcome the Bill, because it was one of a significant number of measures taken on the initiative of the Labour Government, to which the Minister has generously paid tribute.
The Labour Government had a good record—Lord Chalfont in particular—in this matter, whether in the form of the non-proliferation treaty, or a ban on the use of the sea bed. The direct efforts of that Government, which I am happy to say have been fully adopted by the present Government, are at last bearing fruit in the Bill.

The Chairman: I am sorry to interrupt, but I must remind hon. Members that the eavesdropping microphones are very sensitive and that whispers are greatly amplified. That makes it difficult for the HANSARD reporter.

Mr. John: I am obliged for that reminder, Mrs. Jeger, which was no doubt intended for recalcitrant Tory Members, who will have plenty to grumble about.
We are now discussing the enshrinement in our law of a weapons treaty. As tong ago as July 1968, even before the written memorandum was submitted, the British representative at the disarmament conference first put forward the suggestion that there might be a division between chemical and biological warfare in order to get some focus on the latter.
That was followed by a working paper in August 1968 which laid down the guidelines for an approach to this subject. It is worth bearing in mind that the suggested approach did not, at that stage, command universal international acceptance, and it is a great tribute to Her Majesty's Government—of both parties—that they have worn down the opposition and belief that the Geneva Protocol is the last word on the subject.
Welcome though the Bill is, it contains a number of weaknesses, most of which are possibly the result of weaknesses in the original treaty and its drafting, but some of which are inherent in the drafting of the Bill itself. I hope that when the Under-Secretary of State replies to the debate he will deal with them.
The first weakness of the treaty, and therefore of the Bill, is in the definition

section. The Minister was good enough to give us a definition of what he meant by a "toxin". All that the definition part of Clause 1 does is to reproduce what is said in the convention itself, without attempting to define further what is meant. It is my belief that that may have the effect of encouraging States either to put a restrictive interpretation upon the meaning of the treaty, or to claim an exception to the ban, unless "biological agent" and "toxin" are more closely defined.
In Committee my hon. Friends and I shall seek to insert a better definition of "biological agent" and "toxin" with the commonly accepted intention of making it clear to the world where Britain stands, what view we take of our obligations, and what view we take of the weapons and agents that are included in the Bill. So far as I can see, there is no inhibition against our doing that. Ratification of the treaty to make clear where we stand and what agents we believe should be within the Bill will be a valuable step forward and a further portent of British sincerity in this matter. The World Health Organisation attempted such a definition of biological agents some time ago.
The second weakness in the Bill is also in the treaty. It is in the wording of Clause 1(1)(a) which merely bans the development, production, stockpiling, acquisition or retention of
any biological agent or toxin of a type and in a quantity that has no justification for prophylactic, protective or other peaceful purposes".
"Prophylactic" clearly deals with immunisation, and so on, against disease. "Protective" is apparently explained in the convention to mean the development of defensive counter-measures such as masks, clothing, and so on, to counteract any possible biological effects.
One of the great omissions from the Bill, certatinly in the view of most commentators who have submitted written commentories upon the treaty, is research work. The reference to
protective or other peaceful purposes",
together with the omission of the research prohibtion, means that there will be continued research into biological agents and testing in both the laboratory and in the field, and that will be lawful within the definition of this treaty.
This is, therefore, only a partial success, and it points to the further weakness that one can never be sure where defensive measures stop and offensive uses start. The development of biological agents from the point of view of taking defensive measures against them also has within it the capacity to use those biological agents as offensive weapons should the need arise.
The Minister will no doubt say that the treaty also seeks to ban any weapon or delivery system, but, at any rate according to American scientific articles, it is admitted that the United States has conceded that its delivery systems for biological weapons are no different from delivery systems for more conventional weapons. If, therefore, a State were malign enough, it could seek to evade the issue because of the vagueness of the treaty. The treaty as drafted does not go far enough and is too imprecise, and I think that the Government should try to go further and lay it down that no biological agents or toxins shall be developed which are not strictly necessary for prophylactic and protective purposes.
The third weakness, as I think the Minister will readily concede, is that in the present state of international relations no system of verification of the treaty is laid down. Even before the treaty was announced, the United States had made a unilateral renunciation of biological weapons and had turned Fort Detrick into a cancer research laboratory. Britain announced at that time—I think it was in 1969—that she had no biological weapons, and had no intention of acquiring any.
The trouble in international affairs is that doubt and suspicion have always outweighed—and probably always will—the amount of mutual trust existing between nations. The Minister mentioned France and China as non-ratifiers of the treaty. I accept that France has introduced domestic legislation, but the non-ratification by those two countries is a serious gap, particularly in the case of China. It is a serious gap in the international solidarity on this issue, and as that gap exists doubts must occur all round.
In an article in July 1972 in the United States publication Science, and in a

further article in the New Scientist in December 1972, doubts were expressed about whether, for example, the United States had lived up to the bald statement that had been made about the renunciation of biological weapons; because after that announcement it was said the Army Institute of Infectious Diseases had received a 50 per cent. increase in its budget for research, the inference being that potential biological agents were being researched in a country that had apparently unilaterally renounced biological weapons.
May I suggest what the Government should do in this debate to allay fears in this country? There is no doubt that Britain is doing research and has research laboratories which have attracted the attention of hon. Members and others from time to time. I appeal to the Government to be as candid as they can be about the effect of the laboratories in Britain and their proposals for what is to be done with them if the Bill becomes law. If the doubts of a country's elected representatives cannot be resolved internally, then our chances of international agreement are weak.
I have dealt with the weaknesses in the treaty and where, in my opinion, it has led to weaknesses in the Bill. I now turn to the Bill itself. I take issue on one point with the Minister. I yield to no one in my abhorrence of the weapons concerned and my support for the measures being introduced, but my reading of Clause 1(3) is not that there should be a maximum penalty of life imprisonment, but that there shall be a fixed penalty of life imprisonment, which is very different. However horrifying any weapon is, and however heinous the crime of creating it, there must be room in any Act of Parliament for flexibility for recognising degrees of guilt.
Let me give an example. Obedience to orders is no defence to a charge of having committed a crime, but we would fall into a great error if we were to suppose that the corporal or sergeant, or whoever carried out orders, was as culpable as the man who devised the evasion and gave the orders. I believe that we should, as we did in the Genocide Act, provide some flexibility.
The Minister will recall that in the Genocide Act there is a clear division when genocide has caused killing and


when the offence might potentially have done so. In the former, a sentence of life imprisonment is reserved. In the latter, the sentence is 14 years' imprisonment.
I appeal to the Government to consider this again to see whether there can be greater flexibility in the punishment of those who, on any view of the matter, are morally less responsible than others for the development of these weapons.

The Under-Secretary of State for the Home Department (Mr. David Lane): I do not like to interrupt the hon. Gentleman, but it might help to clarify the debate if I make it clear now that the hon. Gentleman is wrong. This is not a fixed penalty. There is flexibility for a shorter term of imprisonment. There is also flexibility for the imposition of fines in addition to, or instead of, imprisonment under Section 7(3) of the Criminal Law Act 1967. I make that clear now but we can return to it later if necessary.

Mr. John: That is a welcome assurance, and I am glad to hear it. My reading of the clause led me to think that there was no flexibility, and I am happy to obtain the Minister's assurance that we might deal with this a little later.
The next point that I should like to make on the drafting of the Bill relates to the body corporate. In view of what the Minister said, what punishment will be visited on a body corporate for an offence under this provision? One can hardly imagine, for example, ICI being sentenced to life imprisonment. Presumably that would be taken care of under the fines provision, and I hope that the penalty will be sufficiently weighty to deter what are serious offences, and for which a company should bear every responsibility. If it is not, I hope that the Minister will consider increasing the monetary penalties to meet the grave nature of the crime.
That said, I return briefly to the treaty. There are two points in the preamble which I regard as of the utmost importance. The first—and this meets the points made by my hon. Friend the Member for West Lothian (Mr. Tam Dalyell)—is that the ban on biological warfare is said to be a possible first step towards chemical weapons disarmament. I hope that that will follow and that we can soon expect progress on this vital matter, because

there is not the watertight compartment between biological and chemical weapons that may be supposed.
For example, the defoliants used by the United States of America in Vietnam have been suggested as possible agents for the deformation of the foetus in a woman. One therefore gets the overlap between chemical and biological weapons, and I hope that the Government will press with the utmost vigour for chemical weapons disarmament.
The second point made in the preamble is equally important, or perhaps even more so. The treaty is a step towards general and complete disarmament. It has been said by some cynics, and it is right that we should refer to this, that the chief spur to international agreement about the use of biological weapons is the unreliability of the weapons and the instability of delivery systems; the fact that they could as easily affect the countries which deliver them as the countries upon which they are launched. I hope that that cynical view will not prevail, but that will happen only when the peoples of the world see their Governments pressing forward towards general and complete disarmament.
Britain had an honourable record in the last decade in this respect, and I look forward to the Government's assurance that they will press with equal vigour and ingenuity to find ways of breaking the horrifying deadlock in international affairs. We have all lived far too long under the shadow of war and, as we saw from the Middle East crisis, even the most limited war can spill over very easily into the threat of world annihilation. We can rest easy only when we have complete and general disarmament, and I hope that the Government will play their full part in the achievement of that laudable aim.

11.2 a.m.

Mr. David Price: As my right hon. Friend rightly observed, the object of the Bill is to enable the United Kingdom to ratify the convention. It is to the convention, more than to the Bill, that we should address our attention on Second Reading. I have a number of minor points which I shall reserve for the Committee stage, and I shall keep my comments now to general points.
The purpose of the convention is a noble one to which I am sure every hon.


Member subscribes, and to which I hope everybody in the country subscribes. I am particularly attracted by this sentence in the preamble:
Determined, for the sake of all mankind, to exclude completely the possibility of bacteriological (biological) agents and toxins being used as weapons.
Will the convention, when ratified by the signatory nations, exclude completely the possibility of bacteriological agents and toxins being used as weapons? I am extremely doubtful that it will. That is not to say that I do not welcome the convention—of course I do—but I see no real security in it against the possible use of these weapons by would-be aggressors.
Let us remember—and this is very important—that one does not need to be a super Power to produce these weapons. These weapons differ fundamentally from nuclear weapons, or even large-scale conventional weapons. I go further—I want to put this very seriously—and say that in my judgment any determined terrorist group which puts its mind to the production of such a weapon could do something very nasty indeed without much difficulty.
For instance, it is generally accepted that any brewery which is accustomed to growing its own yeast has the capability to grow anthrax spores. The Committee will recall that Dr. Robert Koch, who in the last century discovered the life-cycle of the anthrax bacillus, did so with remarkably limited equipment. Let me remind the Committee of how these things can be done on a small scale. Dr. Koch had one microscope, some home-made photographic equipment, some kitchen plates for laboratory dishes, and potato slices as the nutrient surfaces on which to grow his bacteria. Incidentally, anthrax, in its pulmonary variety, is, I am assured, almost invariably fatal.
Let us consider the terrorist who wishes to poison the water supply. This is a classical situation and has been the subject of many thrillers. One remembers the work of G. K. Chesterton. What seemed fictional at the turn of the century is by no means fictional today if one considers the activities of terrorist groups around the world.
I am advised that ½ kg of the appropriate salmonella culture has the same toxicity in the waters of a local reservoir

as 10 tons of potassium cyanide. I commend to hon. Members, if they think I am being fictional, a reading of the annexe to the World Health Organisation publication "Health Aspects of Chemical and Biological Weapons" under the heading "Sabotage of Water Supplies". One does not have to be a super-Power or even a nation State to do that.
I hope that those two homely examples—and I use the word "homely" advisedly because this can be a cottage industry—make my point that biological weapons are not like nuclear weapons which are the exclusive prerogative of the larger Powers, and therefore they are very much harder to control, to inspect and to protect ourselves against. If I may say in passing to the hon. Member for Pontypridd (Mr. John) this is a good reason why we should continue the work of the MRE at Porton.
To prove my point that that applies not only to biological weapons but also to chemical weapons which are referred to in the convention, I quote from the answer given by the Director-General at Porton to questions put by the Select Committee on Defence Research in the Session 1968–69. He said:
Smaller countries can acquire the capability, even if it is an unsophisticated capability. The basic chemistry involved in many of these agents is open knowledge and all it requires is the intention to work it and the necessary technical experience—which need not be much—to convert this knowhow into a weapon system.
The convention is, of course, reflected in the Bill, and there appear to be two factors by which control is to be exercised. The first is the quantitative factor, and the second is the purposive. I shall not bore the Committee by reading out the wording of the convention, but subsections (1) and (2) of Clause 1 are the relevant subsections.
Although quantity, as a guide, has merit, expert opinion is divided on the matter. For example, there is no doubt that the saboteur has plenty of opportunity in cottage industry production. If one is to develop a more serious biological weapon, obviously production has to be scaled up. There is a considerable difference of opinion and I use the United Nations scientific work as my authority on this matter. It is reckoned that to attack a city of 500,000 inhabitants


with biological weapons sprayed from the air, which is assumed to be the appropriate method, about 1017 to 1019 pathogens need to be produced. That is pretty formidable. It suggests that fairly large-scale production would be required, probably in a continuous process, certainly supported by extensive freezing plant, because these pathogens quickly become inert at normal temperatures.
On the other hand, there is conflict of evidence. My own experience has been limited to the manufacture of biologically active products for commercial purposes, namely, in the production of industrial enzymes. I assure the Committee that, in relatively small fermentors, one can produce considerable quantities by batch production, although—and this is important—the original cultures were produced under near-laboratory conditions.

Mr. John: Would not the hon. Gentleman agree that one of the weaknesses of the Bill and the convention is the reference to production
in a quantity that has no justification".
The Bill does not say in whose opinion the quantification and justification must lie. It must obviously lie in the hands of the Government, who can interpret it elastically.

Mr. Price: The hon. Gentleman is on an extremely important point which I suggest goes very much wider than the convention. It is at the heart of disarmament and arms control which, in our present state of international relationship, depends on agreement between nation States and relies for enforcement upon the good will of the individual nation State to self-police itself. Many of us believe that a world régime of greater discipline and authority is called for to deal with these matters.
I think it only fair to my right hon. Friend and the Government, and, indeed, to their predecessors in office, to say that we cannot change the world overnight, although many of us would like to. We have to work within the set-up of the world as we find it. Regrettably, nothing other than the tools of the convention are available to Her Majesty's Government.
I pass to the second factor—that of purpose. I find this extremely difficult, because I disagree with the opening

remarks of the hon. Member for Pontypridd. I do not know any of the major bacteria, viruses, or streptococci which are potentially amenable for use as bacteriological weapons, but which are not also necessary for research and production prophylactically. As a result, the question of hostility of purpose is not amenable to technical distinction or description. That is the difficulty.
We must remember that some of the potentially most lethal bacteriological weapons are also those that exist in nature as natural diseases, for example, the bubonic plague. There is the dilemma. No one can object that nations not only research into the bubonic plague but also manufacture vaccines against it.
I believe, therefore, that we are in difficulty here. I quote from our Select Committee report when the Director of M.R.E., Dr. Gordon Smith, said:
The question of how much is defence and how much is not is a rather difficult one because so much of what we do for defence reasons is of direct medical or public health interest and you may therefore regard a high proportion of what we do as of civil interest, but we are doing It for military reasons.
In other words, I find this distinction, which is in the convention and is therefore reproduced in the Bill, that control should be based on purpose remarkably difficult. I am sure that my hon. Friend the Under-Secretary at the Home Office will explain how legally difficult it is to define an offence as one which depends upon the purpose behind the act rather than the act itself. That is the basic weakness in the whole convention.
May I ask my hon. Friend, when he replies, to comment on some of the articles contained in the convention. Article II deals with the destruction or diversion for peaceful purposes of biological weapons already in the hands of a major Power. May I ask two simple questions.
First, will any country admit to having such weapons and, if not, what is the view of my right hon. Friend as to how many countries have such weapons available?
Secondly, Article VII says,
Each State Party to this Convention undertakes to provide or support assistance, in accordance with the United Nations Charter,


to any Party to the Convention which so requests, if the Security Council decides that such Party has been exposed to danger as a result of violation of the Convention.
Will my right hon. Friend tell us what obligation that puts on the United Kingdom?
One interpretation suggests to me that that goes no further than our current obligation under the charter. I wonder whether my right hon. Friend would tell us whether that gives us a commitment beyond that which we already accept under the United Nations' Charter.
So far as Article IX is concerned, may I follow up what the hon. Member for Pontypridd said and ask whether my right hon. Friend can give us any more information about the probability of getting a similar convention on the prohibition of chemical weapons? When we talk about toxins, we really mean chemical weapons. The division between chemical and biological is almost academic.
Article XII deals with a possible conference and follows upon the matter that I have just raised. What are the prospects?
Article XIII is an escape clause. It says:
(2) Each State Party to this Convention shall in exercising its national sovereignty have the right to withdraw from the Convention if it decides that extraordinary events, related to the subject matter of the Convention, have jeopardised the supreme interests of its country.
That is, with respect to the learned statesmen who drew up this convention, a complete escape clause for anyone who wishes to use it. It could render the convention nugatory.
In the context of the current war in the Middle-East, one notices the considerable number of absentees amongst the signatories. Whereas, Egypt, Jordan, Kuwait, Lebanon, Morocco, Tunisia and Yemen are signatories, Israel, Iraq, Syria, Libya and Algeria are not. I observe the point, and do not wish to comment further.
I believe that this convention is of value. It is an earnest of good intentions. It will constitute some psychological barrier against the use of biological weapons, but how much of a barrier is an open question about which honest men can disagree. It is a further step in mankind's

halting journey from tribal warfare for the securing of the best hunting grounds to some form of world order. That was the point made by the hon. Member for Pontypridd, and one that I am entitled to make, having been a member of the all-party group on world government ever since I have been a Member of this House.
I believe, too, that the convention may have some marginal value as a deterrent, but the real deterrent to the use of biological weapons by the nations of the world remains in their uncertainty and the fear that they may rebound on the attacker every bit as severely as that which the defender suffers. To that extent I must remain, unlike the hon. Member for Pontypridd, a case-hardened cynic.

11.19 a.m.

Mr. Hugh Jenkins: I believe that most of us welcome the Bill. However, many of us go along with what has been said by both sides of the Committee, namely, that we ought not to exaggerate what we are doing, or the extent to which we greet the Bill.
In some respects, the isolation or the bringing out of biological weapons from the generality of the past is a disquieting development. Many of us take the view that the original all-embracing character of the Geneva Protocol of 1925 was the right approach to the problem, but there have been scientific developments since then which mean that the range of weapons in this area has markedly increased. It has, therefore, become possible to make the sort of division that we are making in the Bill, and upon which the convention that it seeks to ratify is based.
It is true that what we are seeking to do now is to say that we shall not do that which we have no intention of doing, at the cost of continuing to be able to do something that we know we ought not to do but think we might do. That, I fear, is precisely what the nations of the world are getting together to do in this agreement. It would pay us to see whether it would be possible to persuade the Government that the Bill ought to go rather farther than it does.
There are difficulties in this, because the Bill presently seeks to ratify the convention as it is. It would be possible,


if the Government were so minded, to go further than merely ratifying the convention and say that we shall not merely ratify what we have to, but that we shall take further steps as an example to others.
Were the Government minded to do that, would it be possible? The Foreign Office believes that it would, but the trouble here is the Ministry of Defence. I regret that it is not represented here this morning. I have some experience of arguing with Government representatives in various Departments over the years as a supporter of the Committee on Chemical and Biological Warfare. In that capacity I have discovered that when talking to representatives on the Foreign Office, Ministers from either side of the House, or officials of the Department closely concerned, one is talking the same language. One has the sense that they share the concern and alarm about this and would like to reach satisfactory international arrangements in order to get rid of it.
Unfortunately, that does not apply to the Ministry of Defence. One feels that the Ministry of Defence is of the opinion that it should hang on to the biological weapon. That is at the heart of the whole trouble. Basically, that criticism probably applies to Ministries of Defence and Foreign Offices all over the world. There are those who have the weapon and are determined to hold on to it, or to hold on to the possibility of using the weapon in case they are attacked. That is the defence mentality. The Foreign Office mentality sees its duty, quite properly, as that of reaching an agreement, as a result of which these weapons will no longer exist, thereby removing the raison d'être of the Ministry of Defence. One can understand why this inherent conflict exists between Foreign Office and Defence departments.
The Government have the duty of deciding where the interests of this country lie between those two Departments. I am not suggesting that it would be different if the Government changed, but it is convenient to decide that that is the point of the convention and not to go beyond that.
I do not know the Swedish Government's position in this matter. The Swedes are refusing to ratify the convention because, quite rightly, they say that

it does not go far enough. It would be possible for the Swedish Government, if they chose, to say that they will ratify the convention but that they will opt out in terms of chemical as well as biological weapons.
It would be possible for a Conservative or a Labour Government to take up that position, too. I hope that when my hon. Friend the Member for Portsmouth, West (Mr. Judd) winds up on this debate he will say that a future Labour Government will not be satisfied with a convention of this sort and that we shall want to go much further and prohibit all chemical and biological weapons even though they are scientifically much more spread than they were originally envisaged under the 1925 Protocol.
The interpretation of the range of the 1925 Protocol has changed over the years. Originally, in 1925, it was intended to be all-embracing, and was interpreted as being so by, for example, Mr. Arthur Henderson. I do not have chapter and verse for that, but it will be generally recognised that that was the case. The chief reason for the breakdown of the concept of the 1925 Protocol as being all-embracing in this area was probably the invention of CS gas.
It is sad that it was this country that decided that CS gas was not to be included in the 1925 Protocol. We said that CS gas was useful, that it could be used usefully in Northern Ireland, and that it could be used as a smoke. It was described as a smoke and excluded from the Geneva Protocol.
That rather simplified statement covers what has happened to undermine the general proposition that the 1925 Protocol was all-embracing and not in need of the sort of interpretation outlined in the Bill. Had we hung on to the idea that the intention of the 1925 Geneva Protocol was to ban everything in this area there would have been no need for the sort of definition that we are deciding upon now. There would have been no need to separate chemical from biological, and so on, nor to say that we can abjure this which we do not think we can use, but not abjure that which we think we might use. It is not a noble position in which to find ourselves, and our rejoicing this morning should be modified.
I hope that we can improve the Bill in Committee. One can increase the range of a Bill in Committee to suit one's desires. It is not only possible to modify a Bill, but clauses can be added to extend the range of a Bill beyond the limits laid down, and I hope that we shall do that.
The 1930 Labour Government made their position clear about the protocol. They said that it prohibited the use in warfare of
asphyxiating poisonous and other gases and of all analogous liquids, materials or devices"—
which is about as all-embracing as it can be, and that—
the use in war of other gases, including lachrymatory gases (i.e. chemical irritants) was also prohibited.
That was the interpretation in 1930, and it was unfortunate that that interpretation was changed later, because it seems to me that it was from that point that the gradual interpretive process stemmed.
I said that I had always found the Foreign Office ready to discuss these matters, and I should like to ask the Minister whether the Government's position is that described to the Select Committee on Chemical and Biological Warfare on 4th July 1972, when Mr. Summerhayes of the Foreign Office summarised the British position by saying that Her Majesty's Government wished to see a comprehensive ban on the production and stockpiling of "C" weapons—that is to say, chemical as well as biological weapons. I am not holding Mr. Summerhayes responsible for this, because it is an interpretation of what he is supposed to have said on that occasion, but if it is true—and I believe it is—that the Government's position still is that although we are now ratifying only the treaty on biological weapons their ambition is to have an all-embracing treaty, I hope the Minister will say whether the Government want to extend the intentions and effects of the Bill beyond the point to which it currently goes. If the Minister says that, it might persuade the Committee to take an immediate step rather than leave it until some other occasion.
We should emulate the Canadian Government. They are total in their view on the issue. They say that they have never possessed any biological

weapons, nor any chemical weapons other than devices of the type used for crowd or riot control.
Here again we come to the CS exception, even in Canada which takes a more total view of this than some other Governments. They say:
Canada does not intend at any time in the future to use chemical weapons in war, or to develop, produce, acquire or stockpile such weapons for use in warfare, unless these weapons should be used against the military forces or the civil population of Canada or its allies. The latter condition is in accordance with the reservations Canada entered at the time of the ratification of the Geneva Protocol".
Thus, even Canada, which takes a progressive view on this matter, makes those reservations. As long as countries make such reservations it will be difficult for us to obtain an effective unilateral and enforceable agreement.
I end by echoing the words of the Secretary-General of the United Nations, who said that the question of banning chemical weapons is at the forefront of the agenda for the present session of the conference of the Committee on Disarmament. I earnestly hope that it will be possible to reach an agreement on the subject in the near future.
I should like to think of the proposals before us this morning as an interim agreement—a step on the way. If they are not a step on the way to a total attitude to the whole range of chemical and biological weapons, they could be the opposite, namely, a decision which, by isolating something which we do not and cannot feel, leads us to accept chemical weapons as a part of the armoury of mankind.
It is of vital importance this morning for the Government to state that this is a step towards total prohibition, and does not amount to a release of the alternative chemical weapon which the Government wish to embrace. If the Government are able to say that they hope to move rapidly towards a more prohibitional attitude, the Opposition will not recommend that we divide on Second Reading and will see what can be done to enhance, strengthen and improve the Bill in Committee.

11.34 a.m.

Mr. E. S. Bishop: Every time one speaks on a measure such as


this one's intended remarks become more and more unnecessary. I therefore have little to say, except to ask one or two questions and to add a word of emphasis.
A Bill such as this, on which there is a large measure of agreement, is often shunted to a Committee and the questioning on underlying important issues may be restricted to those who are able to attend and take part. As hon. Members have said this morning, there are aspects of this issue which cause grave concern.
Reference has been made to the Protocol of 1925 in connection with asphyxiating poisonous and other gases, and bacteriological methods of warfare. That protocol was passed a long time ago. As we are concerned here with a more limited area of possible warfare or danger to mankind, we should like to know what action has been taken on other aspects, so that action which we now propose will be complementary to it.
The Explanatory Memorandum says:
The purpose of this Bill is to enable the United Kingdom to ratify the Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological … Weapons … (Cmnd. 5053).
That suggests that we are concerned only with the minimum necessary to ratify the convention. I hope we shall be told that this is the minimum, and that the Minister will assure us on the matters that have been raised this morning. That is necessary if we are to do justice to the House and to the country in the progress of this important, though noncontroversial measure.
We have been told something about the aspects of legislation concerning the 1925 Protocol to which I have referred, but I should like to know a little more about what action has been taken in these areas to see how complementary they are to this measure.
What exactly is meant by "ratify" in the purely legal sense, and what is the minimum necessary by any signature country for ratification? Here again, one comes to the minimum necessary to ratify, and I hope that we can go a little further on that.

Mr. Amery: I apologise to the hon. Gentleman for intervening, but I should like to clarify this matter. It is hoped that after the passage of the Bill the

three depositary States—the United States, the Soviet Union and ourselves—can ratify on the same day. Thirty States have ratified, and 22 is the minimum required, plus the three depositaries.

Mr. Bishop: The Minister has probably answered my next question. He said that 110 States were signatories to the convention, but that only 30 had ratified since July 1972. Was the delay in bringing this measure before the House due to certain steps that we had to take before we could give assurances to justify our ratification? What steps are being taken, or what influence is being brought to bear by the Government, to speed up ratification by other countries? That is important if the measure is to mean anything to anyone.
My next question, which was also asked by my hon. Friend the Member for Pontypridd (Mr. John), refers to penalties. I hope that any fines that are to be imposed relate to the profitability of those who can make vast fortunes out of the exploitation of the things that we want to restrict or ban.
I recognise the enormous steps that have been made over the last few years in science and technology and in research and development with regard to water contamination, defoliation, drugs and chemicals generally, and gases. That is an indispensable part of the progress of mankind, but when paragraph (1) of the Explanatory Memorandum talks about the agents and the substances to which we refer being used for peaceful purposes one comes to the difficult dividing line between research for good purposes and the purposes that we are trying to restrict in this measure. Although we are taking steps to deter research and development of the things that we want to ban, we should be careful not to restrict the development of the things that are necessary for the progress of mankind.
Paragraph (2) refers to
weapons, equipment or means of delivery designed to use such agents or toxins for hostile purposes or in armed conflict.
Various means of delivery can be used. It all depends how it is used whether an iron bar is a good thing or a potential weapon. That is another matter which needs clarifying.
We are concerned not only with dangers arising from other countries using weapons referred to in the convention,


but also with hijackers who can hold a community to ransom. It would not be desirable today to talk about the possible dangers of hijackers using biological weapons, acquired or produced for peaceful purposes, for evil intentions. We all know that hijackers do not sign conventions.
That brings me to the problem of detection, and what action the Government have in mind about it. Again, one cannot expect all the answers, because that would be counter-productive. One would like to know whether the Government are aware of the kind of research that goes on from time to time, and in what areas.
I have necessarily restricted my comments because hon. Members on both sides of the Committee have raised these legitimate and important subjects. We should regard the Bill as the minimum to ratify the convention. The Government should be more forthcoming on matters about which hon. Members have expressed anxiety.
Some of us were on the Committee that considered the Atomic Weapons Bill, when we sought more information from the Government but did not receive it. The Government should be warned against giving too little information, because too much secrecy can add unnecessarily to anxieties on this important subject.

11.43 a.m.

Mr. Frank Judd: I should like to join my hon. Friends who have congratulated the Government on bringing forward the Bill. It has been clear from all the speeches that we applaud its general purpose and want to do everything possible to facilitate its passage.
I am concerned about strengthening its effectiveness in Committee. I thought that the interesting remarks of my hon. Friend the Member for Newark (Mr. Bishop) illustrated the sort of details with which we shall want to deal in Committee, for most of the work on the Bill will be done in Committee.
I should like to underline some of the observations of my hon. Friend the Member for Pontypridd (Mr. John). There are four subjects in particular on which we shall require much fuller information from the Government.
The first concerns penalties for bodies corporate and the nature of the monetary penalties which the Government envisage. The second concerns the need for hon. Members to be clear about the definitions of "biological agents" and "toxins". My hon. Friend made the interesting point that we had seen in the context of the Vietnam war the biological implications of the use of chemical weapons.
Thirdly, there is a need to recognise the blurred dividing line between offensive and defensive work and preparations. I should like to know more of the Government's thinking on this subject.
Related to that is my fourth and most important point. We all recognise that research work is continuing in this country. The Opposition wish to emphasise that if the sincerity of the Government and the nation in this legislation is to be established, it is important that the Government should be as forthcoming as they can be about the nature and scope of the research work. I hope that we shall hear more on those four basic points.
My hon. Friend the Member for Putney (Mr. Hugh Jenkins) made a committed speech. We all appreciate and respect his dedicated work in disarmament. He drew attention to the problem which must always concern us, that if we endorse a partial move towards disarmament, one of the sad aspects of doing so is that we may appear to be giving moral endorsement to those forms of warfare not covered by the partial disarmament. The relevance and effectiveness of this legislation can ultimately be judged only in terms of how far it advances the cause of general and comprehensive disarmament. We particularly want to see measures as soon as possible towards the comprehensive banning of methods of chemical warfare.
I turn now to the interesting observations of the hon. Member for Eastleigh (Mr. David Price). He opened up the whole nature of the problem. It is most important that we should not limit our evaluation of this or any other legislation regarding disarmament simply to our experience of traditional forms of formal warfare encountered in the past. In the past decade there has been a revolution in the techniques of warfare which few of


us would have imagined likely even two decades ago. If we are responsible legislators, we cannot sweep the developments under the carpet: we must face them squarely.
The hon. Member for Eastleigh did a great service to the Committee by emphasising that we were now dealing with an age of terrorist and guerrilla warfare techniques. If the situation were not so macabre, it might be almost funny that after two decades or more in which the super Powers have been locked in the nuclear stalemate and have been totally preoccupied with the dimensions of nuclear warfare, should it be unleashed, there has suddenly vaulted over this stalemate the concept of urban terrorist activity which holds the whole community to ransom. We must recognise that in this respect and in nuclear warfare we are finding that the raw materials from which crude weapons could be made and used by terrorists are all too readily available.
We cannot ignore the fact that the more we concentrate on civil nuclear energy, the more we create the raw materials from which nuclear weapons can be manufactured. In an age of large-scale international crime syndicates, let alone international political organisations, we cannot turn our backs on the dangers involved. That applies equally to biological warfare.
As we prepare for the detailed Standing Committee work, we should bear in mind that if any of us have been tempted in the past to think of disarmament matters as pipe dreams, not in the realm of immediate political priorities, we must change our attitude quickly. As defence spokesman for the Opposition, I can say that we firmly believe that disarmament should be in the front line of a relevant defence policy. We are therefore disappointed that there is not present a Ministry of Defence Minister to speak for the Government on this matter.
We suspect that within the Government's ranks there remains a tendency to see disarmament as a low priority, for the disarmament section of the Foreign Office to be regarded as a group of people doing specialist research in the back rooms, rather than a group who should be in the shop window of what we regard as the national priorities in defence. That situation must be rectified.
We support the Government in general and we assure them that our work in Committee will be constructive. We congratulate them on bringing this legislation forward. I emphasise that the Opposition are encouraged by the limited prospects presented by the Bill because we see it not simply as an isolated and negative piece of legislation connected with one form of warfare, but as a constructive step towards what can in the end be the only relevant form of defence policy for the nation.

11.52 a.m.

Mr. Lane: I am grateful, as is my right hon. Friend, for the constructive discussion that we have had this morning. I am particularly grateful to Opposition Members for making it possible to get the initial stage moving quickly. I am glad that the Bill has had a general welcome, subject to reservations. I wish to echo what has been said about the speech of my hon. Friend the Member for Eastleigh (Mr. David Price) to which I shall refer later.
We shall be delighted if the Bill can be improved. We shall try to be as forthcoming and frank with the Committee as possible, and I will do my best now to respond in that spirit.
I echo what my right hon. Friend said—and this takes up a point made by the Opposition—that we see the Bill as a useful step forward in general disarmament. It is a step in which this country, under both Conservative and Labour Governments, has played a major part, as the hon. Member for Portsmouth, West (Mr. Judd) said, in advancing the cause of general and complete disarmament. The reply to the hon. Member for Newark (Mr. Bishop) is that the Bill is making ratification possible by setting up internal machinery in this country, which is one of the original signatory Powers.
Two of the major themes from our discussion are our future intentions on disarmament and chemical warfare. Some unjustified attempts were made to drive a wedge between the Foreign Office and the Ministry of Defence. I assure the hon. Member for Portsmouth, West that even if we do not have the support of a Minister from the Ministry of Defence today we have two Parliamentary Private Secretaries who will be faithfully relaying to our colleagues in Ministry of Defence


the general spirit of what has been said this morning. We are operating as a team in this matter, as hon. Members will have realised.
On the general matter of disarmament, we have repeatedly made clear—and I am glad to be able to do so again on behalf of the Government—that we are anxious actively and positively to pursue all possible effective measures on arms control and disarmament. Our delegations in New York, Geneva and Vienna have shown by their positive participation in current disarmament negotiations the strength of the Government's intention to carry on the work as rapidly as possible.
In order to reassure those hon. Members who asked questions about the subject, I repeat that we are absolutely committed to a definite eventual prohibition of the development, production and stockpiling of chemical weapons and to effective measures of verification. That aim was implied in our support for United Nations Resolution 2826 of 7th December 1970, which specifically mentioned this objective. I can give that assurance in the terms of one of the clauses in the preamble to the convention.
The hon. Member for Pontypridd (Mr. John) and other hon. Members asked about the borderline between defence and offence. Questions were asked about future work at Porton and how it may be affected by the Bill. There will continue to be a requirement at Porton for some protective defence work to continue. Most of the work at Porton is entirely open and is published in scientific literature.
My hon. Friend the Member for Eastleigh has reminded us that a Select Committee recently conducted an investigation of Porton. An open day was arranged at Porton recently, when the Press and scientists were able to see and discuss the work there. There have since been other visits by the Press, scientists and the public, and I am sure that the Ministry of Defence could easily make arrangement for visits by any members of the Committee who wish to go.
I accept that we are discussing a difficult borderline between defence and offence. The convention was not meant to prevent any State from continuing

research work into defensive measures against possible attack. A distinction can be drawn and I assure the Committee that we shall ensure that any Government establishment involved in this work does not infringe the Bill. Hon. Members may wish to return to this subject in Committee, but I wish to make clear now that the Government do not produce or stockpile biological or toxic weapons, and have no intention of doing so.
I hope that I have already at least partly cleared up a misunderstanding about penalties. The penalty of life imprisonment is the maximum. We considered it right that in a matter dealing with life and death—and conceivably death on an enormous scale—the maximum penalty must be severe. I emphasise that life imprisonment is the maximum sentence, but the penalty in any given situation will be a matter for the court and in less grave circumstances it will be up to the court to impose any lesser penalty, either of imprisonment or a fine, as it thinks fit.
I hope that I have made clear the point about directors, managements and secretaries of corporate bodies. There is a flexibility in these provisions and we can return to it in Standing Committee.

Mr. John: Can the hon. Gentleman answer a question about penalties against companies and bodies corporate which, under Clause 3, are liable to a fine?

Mr. Lane: All I can say is that indefinite fines are possible under that clause for bodies corporate, as imprisonment is possible for responsible individuals who manage the company. That is the type of flexibility we have envisaged in the penalty provisions.
There is a difficulty about definition. We have followed in the Bill the definition in the convention itself. If there were a prosecution, that, too, would be something for the court to decide, namely, whether a particular substance in question was a biological agent or toxin as specified in the Bill.
We felt, however, that it would be almost impossible and unwise to try to produce any definitive list of agents or toxins to include at this stage. It could be an exhaustive list and would soon


become out of date. However, as my right hon. Friend explained, a biological agent is normally understood to be a micro-organism which causes disease in man, plants or animals, while a toxin is understood to be a poison which, although produced by biological processes, is not capable of reproducing itself in the manner of a biological agent. We may want to come back to this subject in Committee.
My hon. Friend the Member for Eastleigh greatly helped by putting the Bill in perspective and by pointing out the realtities of the situation and of the whole problem. He said that the Bill had quite definite and substantial value as a step forward, subject to all the difficulties that he mentioned and of which we are very conscious.
My hon. Friend asked whether the convention would exclude absolutely the possibility—and here he was reminding us of one of the clauses in the preamble—of bacteriological agents and toxins being used as weapons. I do not believe that we can absolutely exclude it, but we still believe that it is worth taking this step within the limits of which we are all conscious. My hon. Friend rightly said that there was difficulty about drawing a line and he reminded us of the evidence of the director of Porton who said that
… so much of what we do for defence reasons is of direct medical or public health interest. …
That is, indeed, the case in the evolving work at Porton where more and more it is directly relevant to ordinary peacetime civilian health problems.

Mr. Judd: While we accept this statement, it is a dangerous argument, because there is no reason why that sort of research should not be done completely within a civilian context.

Mr. Lane: I take that point. Equally, I remind the Committee of the trend of work at Porton, much of it very valuable work. We have the situation as it is. Ideally, we might want to set up this sort of research in a different fashion, but we must make practical use of what we have already.
My hon. Friend asked about countries which might not admit to having these

weapons. We do not know that there are any biological weapon systems in existence which could be effectively deployed in war. We understand that stocks of agents in the United States of America have been destroyed, but nothing has been said about the possible capabilities of the USSR.
My hon. Friend asked about progress towards chemical weapons disarmament. I have tried to cover that already. He also mentioned a conference and an escape clause arising out of two articles in the convention, and he noted the absence of certain Middle East countries from the list of signatories so far. I cannot say much more about that, because we are circumscribed by the terms of the original treaty. We have based the Bill on the treaty, although I have heard what has been said by several hon. Members about the desirability of going further if we can. We shall return to this and other aspects of the treaty when we get into Standing Committee.
The hon. Member for Putney—I was glad to have his welcome for the Bill—referred particularly to chemical weapons. All I can tell him about Sweden at the moment is that the Swedish Government continue to require defensive research to be continued in their own defence laboratories.
I think that between us my right hon. Friend and I have cleared up what the hon. Member for Newark said about ratification.
As for encouraging other countries to ratify, the British delegation at the Conference of the Committee on Disarmament in Geneva has been doing its best to get further ratifications of the convention. We hope that when the convention is brought into force, for which our own United Kingdom ratification is a vital requirement, more countries will decide that they should act in conformity with our example. We hope that it will give the convention a fair boost forward.
We have thought a good deal about the best machinery for detection and we believe that the general powers of entry, search and seizure, particularly as set out in Clause 4, will in practice work perfectly well. But that, too, is a fair point that we might want to explore in more depth in Standing Committee.
I end by repeating our hope that the Bill will be a useful, if limited, step forward in disarmament. It gives us the opportunity to reassure the Committee, the House and the country that we are greatly in earnest in carrying forward other measures of disarmament in other respects as rapidly as possible. I hope that the Committee will be satisfied with that as a general statement of our intention,

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:


Mrs. Lena Jeger (Chairman)
Mr. Hugh Jenkins


Mr. Amery
Mr. John


Mr. Jeffrey Archer
Mr. Judd


Mr. Bishop
Mr. Knox


Mr. Dalyell
Mr. Lane


Major-General Jack d'Avigdor-Goldsmid
Mr. Madel


Mr. Goodhart
Mr. David Price


Mr. Harper
Mr. Edwin Wainwright


Mr. Haselhurst
Mr. Weatherill

and we look forward to a constructive Committee stage.

Question put and agreed to.

Resolved,
That the Chairman do now report to the House that the Committee recommend that the Biological Weapons Bill ought to be read a second time.—[Mr. Amery.]

Committee rose at nine minutes past Twelve o'clock.